Set forth below is the text of a comment that I recently posted to another blog entry at this site:

A good number of years back, I asked John Walter Russell to calculate the dollar amount of overvaluation in January 2000 (the high point of the bubble) using the figures for total market capitalization. The market was overpriced by a factor of three at the time; the fair-value P/E10 is 15 and the P/E10 at the top of the bubble was 44. This calculation showed mispricing of $12 trillion.

If the market were to return to fair-value levels (it always does), we were looking to experience losses of $12 trillion. Those are the direct losses attributable to the promotion of Buy-and-Hold strategies. If we permitted honest posting on the last 34 years of peer-reviewed research, we never could experience overvaluation. So we never would have experienced those losses.

There are several indirect effects as well.

One is that much of the money that investors “earned” via the bull market (which the Buy-and-Holders were telling them was real) was invested in real estate, causing a secondary bubble there. The real estate bubble caused about $4 trillion in overvaluation. That brings the total overvaluation to $16 trillion.

We never stop at fair value. Emotional extremes beget emotional extremes. Irrational Exuberance leads to Irrational Depression. There has never been a time in U.S. history when the secular bear created by a secular bull did not take us down to a P/E10 level of 8 or lower, half of fair value. That drop will cost us another $4 billion, bringing the total overvaluation to $20 trillion.

The Congress enacted an economic recovery bill in 2009 in response to the onset of the Buy-and-Hold Crisis. That cost us several more trillion dollars, bringing the total losses up to about $22 trillion.

The Federal Reserve has put several trillion into the stock market since then in an effort to keep the collapse from accelerating, bringing the total losses to somewhere in the neighborhood of $24 trillion.

In contrast, the entire Federal debt (comprised of all of the annual budget deficits going back to the days of George Washington) is only $18 trillion. The losses that we need to cover as a result of the continued promotion of Buy-and-Hold “strategies” for 34 years after the peer-reviewed research was published showing that there is precisely zero chance that a pure Get Rich Quick strategy could ever work for even a single long-term investor either here or in any other solar system is $6 trillion more than the entire Federal debt.

Buy-and-Hold is bad stuff, Anonymous.

Truly bad stuff.

The absolute worst for humans and other living things.

Hence, the great emotional pain you evidence in every comment that you post to this site.

We all need to pull together and persuade our good friend Jack Bogle to walk to the front of a big room and to say the words “I” and “Was” and “Wrong” and thereby to take us to the other side of The Big Black Mountain, where investing risk is reduced by 70 percent and where we all can realistically expect to be able to retire five to ten years earlier than we ever imagined possible in the Buy-and-Hold Era.

Rob

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

“The reason why I said “Grrrrr….” is that the circumstances here are unusual and call for long headlines in some cases.”

This is a microcosm of your entire thinking. You are completely deluded in thinking you are some special snowflake and your little VII is the more important than anything that has ever happened. Never mind that newspapers have existed for hundreds of years and covered every conceivable topic, Rob Bennett and his VII are so important that it now suddenly makes sense to make distractingly long and stupid headlines.

I agree with the part about this being a microcosm of my entire thought process, Anonymous.

I am not even close to being the only person who has noted that there is now 34 years of peer-reviewed research showing that valuations affect long-term returns. Just about everybody agrees with that. Including the Buy-and-Holders. Including you Goons. So that one inspires little controversy.

Where people go onto different tracks is re the question of What That Means.

It means that the entire Buy-and-Hold Model is in error. Buy-and-Hold is rooted in the idea that timing doesn’t work. Long-term timing has ALWAYS worked and has ALWAYS been 100 percent required. There are no reasonable grounds for questioning this. ALL of the evidence shows it. There is ZERO support for Buy-and-Hold in either the peer-reviewed research or in the historical return data.

This is where you Goons jump in and accuse me of believing in conspiracy theories. It is hard for people to believe that the experts in this field could have made such a mistake and it is even harder for people to believe that they would cover it up for 34 years.

They made the mistake because we were still in the early stages of developing our understanding of how stock investing works when Fama did his research in 1965. Bogle had not founded Vanguard yet at that time. So index funds were not available. So long-term timing was not a practical option. So, when people explored whether timing works, all they looked at was short-term timing. Short-term timing really doesn’t work. So Fama discovered something real and important. The finding that short-term timing doesn’t work is the second most important finding in the history of investing analysis. Fama deserves his Noble prize. Good for him.

But Fama never even looked at whether long-term timing works or not. So it is 100 percent absurd for the Buy-and-Holders to go into shock when someone notes that ALL of the research in this field shows that long-term timing ALWAYS works and is ALWAYS 100 percent required. Fama didn’t look at the question. So nothing Fama did even bears on the question.

Shiller was the first researcher to look at long-term timing and he found (in 1981) that long-term timing ALWAYS works and is ALWAYS 100 percent required. Every researcher who has looked at the question in the 34 years since has confirmed Shiller’s finding. So, again, there should be no controversy. All of the research on both questions shows the same two things: (1) Short-term timing never works and should be avoided; and (2) Long-term timing always works and must always be employed by every investor.

Once everyone knows this, we all live far richer lives than we ever imagined possible before. We reduce the risk of stock investing by 70 percent. We increase returns by enough to be able to retire five to ten years sooner. We no longer suffer economic crises. Investor Heaven!

So why have we seen a wee bit of friction over the past 13 years?

We have seen friction because the right thing to do when a mistake is discovered is to correct it IMMEDIATELY. I play the game Dominion. The publisher just published a new expansion. They messed up the printing of the cards. They put out a message within a day or two of the publication of the expansion saying that they will replace cards re which the backs were printed off center. That’s the way it is done when the mistake relates to a silly game. That’s the way it SHOULD have been done re stock investing. Had Bogle gave his “I Was Wrong” speech in 1981, we would today be enjoying the greatest period of economic growth in U.S. history. Bogle f’d up. Big time. He needs to come clean. By the close of business today.

That’s the story.

Now –

Bogle and the Wall Street Con Men have lots of power and lots of money and lots of influence. If the game company doesn’t acknowledge its errors, it will be fried by the public. Unfortunately, things don’t work that way in InvestoWorld. If you want to work in this field, you don’t point out that Jack Bogle has played the lead role in the greatest act of financial fraud in the history of the United States. Bogle’s 34-year cover-up has destroyed MILLIONS of middle-class lives. Bogle is Bernie Madoff multiplied by 5,000.

That’s not my doing, Anonymous. I LOVE Jack Bogle. I rank him as the second most important investing analyst of all time. I learned about the errors in the Old School SWR studies by reading Bogle’s book. I amy very, very, very proud of the investing strategy (Valuation-Informed Indexing) that I have developed. It is the first true research-based strategy. It is going to change the world in a very big and very positive way. VII would not exist if not for all of the wonderful insights generated by Bogle. All of the hard work that I have been doing for 13 years now is rooted in Bogle’s work. There is no bigger Boglehead alive on Planet Earth than Rob Bennett.

But the guy has played the lead role in the biggest act of financial fraud in the history of the United States.

What would you have me do about that? I think that I have responded in a very responsible way. I have sung Bogle’s praises to the skies. While also pointing out the massive act of financial fraud on an almost daily basis and making as many people as possible aware of it. I have balanced honesty and charity in the perfect mix. I have done the right thing over and over and over and over again. I have tried to help Bogle AND the millions of middle-class investors whose lives are in the process of being destroyed by his ongoing act of massive fraud.

Yes, that makes me different.

But, no, I am not the only person who has noticed that valuations affect long-term returns. Everybody who knows anything about stock investing knows that.

Everything I say follows logically from Shiller’s finding that valuations affect long-term returns. I am not an investing expert. I did not go to investing school. I never managed a big fund. But I am not a moron. I have enough going on in the brain department that I can figure out that, if valuations affect long-term returns, there ain’t no way on Earth that a retirement study that fails to take into consideration the valuation level that applies on the day the retirement begins can possibly get the numbers right.

Once I found out that the Buy-and-Holders f’d up on that one, I doubted everything they have done. And, indeed, I have discovered that they f’d up on every issue they have addressed. Always for the same reason. They continue FOR NO INTELLECTUAL REASON WHATSOEVER to pretend that there is no need for a valuation adjustment. The reason why those of us who don’t make gobs of money promoting failed investing strategies correct mistakes when we first learn of them is that failing to do so dooms us to making the same mistakes over and over and over and over again.

THE BUY-AND-HOLDERS MADE A MISTAKE. AND THEY FAILED TO CORRECT IT. THAT’S THE STORY HERE. EVERY PERSON ALIVE TODAY SHOULD BE URGING THEM TO CORRECT THAT MISTAKE BY THE CLOSE OF BUSINESS TODAY SO THAT THEY CAN STOP DESTROYING LIVES. THIS IS NOT OPTIONAL. THIS IS IMPERATIVE!

Is there a vast conspiracy?

Well, those Wall Street Con Men have tons of money and power and they are ruthless in their willingness to destroy the careers of those who try to get the word out to the millions of middle-class investors about the con that has been worked on them. It’s the same story over and over again. Some kind and smart person like Wade Pfau learns the truth and does what he can to get the word out and thereby fix the problem. You Goons threaten to destroy him. Bogle and the other Wall Street Con Men signal their support. The good and kind person flips to the Goon side. He decides that he would rather retain his ability to make a living than to tell the truth and go hungry. Gee, I wonder why so many have flipped! Some of these things are so hard to figure out!

The announcement of your prison sentence will change things, Anonymous.

Wade Pfau doesn’t want to go to prison. Todd Tresidder doesn’t want to go to prison. Bill Bernstein doesn’t want to go to prison. Mike Piper doesn’t want to go to prison. Larry Swedroe doesn’t want to go to prison. And on and on and on and on and on.

They all will flip in one day once your prison sentence is announced. So this is headed to a very good place.

And there will be lots of people demanding your prosecution for financial fraud following the next crash. Why the heck wouldn’t they? People will be losing most of their life savings. They will be able to recover some of the money by bringing legal actions against those who have posted in “defense” of Mel Linduaer and John Greaney and Jack Bogle. Why wouldn’t they want their money back? It’s impossible to imagine any reason. And, once they bring their lawsuits, all of the facts detailed at this site will come out. So then people will demand your prosecution for criminal acts of financial fraud. The logic chain on this one is rock solid.

I am a person who has gotten caught up in circumstances. I didn’t know any of this stuff on the morning of May 13, 2002. I knew that Greaney got the numbers wrong in his retirement study, that’s it. I was obviously doing a good thing to let my discussion-board community know about those errors. The people in the community thanked me for starting the best discussion we ever had at the Motley Fool board. And then Greaney came out with his death threats. Huh? If that’s not proof of a massive cover-up, I’d like to know what would be proof of a massive cover-up.

I didn’t know on May 13, 2002, that there was a massive cover-up going on. I sure do now. What choice do I have other than to expose it? The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. And continuation of the massive cover-up will put us in the Second Great Depression if it is not exposed. Do I have any choice here? Any choice at all?

I obviously have no choice, Anonymous.

You point out all the time that people don’t post here. Thousands have told me that they would LOVE to post here. There are enough people who have told me that they would love to post here to make this the biggest personal finance site on the internet. But people are scared to post here. And for good reason. People know that, if they post honestly, the same things that you Goons did to me and John Walter Russell and Wade Pfau and Ben Solar and ES and Wanderer and John D. Craig and Microlepsis and Earn a Buck and hundreds and hundreds of others will be done to them.

So the biggest advance in the history of personal finance has been delayed. The way this should have played out is that Bogle should have come clean in 1981 and as a society we would have gradually learned more and more each year. We have seen the biggest advances in history over the past 34 years, in particular in the past 13 years. And yet we have reaped no benefits thus far. Because of the death threats and the demands for unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs. You Goons have been super effective in destroying lives. What an accomplishment!

You can’t intimidate me, Anonymous. I don’t want to destroy. I have zero interest. I want to do positive work. So I refuse to be intimidated. Tell Bogle that he needs to get me sent to prison if he wants to shut me up. But be sure to tell him that I have contacted people who have agreed to take over the site in the event that I am sent to prison. So Bogle and his Con Men Pals are going to need to send LOTS Of people to prison to keep this covered up following the crash.

And, even if the Con Men could send all those people to prison, they still have the problem that Shiller’s book was a best-seller and can be obtained in lots of libraries. And they still have the problem that there are thousands of articles and posts that tell the truth about stock investing and that are not even housed at this site (some with my name on them, some with other names on them). The con is failing. The con is coming down. The con is in the process of being exposed.

The History Train is moving forward, Anonymous. There is not a darn thing that Bogle or you or anyone else can do about it. We all need to know the truth about what the last 34 years of peer-reviewed research says. We are going to gain access to the information and analysis we need. The only thing unsettled at this point is how long your prison sentence is going to be. Each day that passes, more lives are destroyed. Each new life that you destroy increases the length of the prison sentence you receive following the crash. That’s the deal.

Yes, the “Grrrr” was a microcosm of my entire thinking. I like doing honest work. I like doing positive work. I like doing intelligent work. So I refuse to pretend that the last 34 years of peer-reviewed research doesn’t exist. It exists. And I use it in developing every post and ever podcast and every calculator and every article and every blog entry and every column that I advance. And I always will. I refuse to be intimidated and I refuse to pretend to be a moron who doesn’t know that valuations affect long-term returns.

Wade Pfau elected to play it differently. I told him that he was “insane” to do so. Wade may or not may not join you Goons in prison. It’s not my call. But Wade is insane to behave in a way that even makes that an issue. Had he played it straight, he would have received his Nobel prize by now. I am sympathetic to his concern that his kids might starve if he does the right thing. Still, I think he was insane to risk a prison sentence. Those in this field who do not possess what it takes to stand up to the Wall Street Con Men and their Internet Goon Squads need to find a new way to make a living. That’s my sincere take re this terribly important matter.

We will see how it plays out following the crash. What else can we do at this point?

I will NOT be intimidated. I will NOT post dishonestly. Get me sent to prison or give it up and come clean or just wait for the next crash and hope for the best. Your call. I made my call on the morning of May 13, 2002. I have never given two seconds consideration to joining you Goons in the years since. It ain’t gonna happen.

I hope that helps a bit.

I wish you all the best that this life has to offer a person.

Rob

Set forth below is the text of a response that  recently posted to the Quora site:

What do you think of David Stockman’s comments that the U.S. Stock Market is now in its third bubble of the 21st Century?

Stockman is right.

He is missing one piece of the puzzle.

This has nothing to do with good luck or bad luck.

There IS something fundamentally broken at the core of our financial system.

The one thing that Stockman does not quite grasp is the ultimate cause of these multiple bubbles. He is right that in a direct sense it is the Federal Reserve that is propping up the bubbles. But the Fed responds to pressures like all other entities. We cannot expect the Fed to make good calls until we remove those pressures.

The Fed is propping up the bubbles because WE want it to. The Fed is a political institution. The Fed will stop propping up the bubbles when the people of this country adopt an anti-bubble perspective. Then the Fed will be happy to help us out.

The core problem is the Buy-and-Hold investing strategy. Buy-and-Hold ALWAYS causes massive bubbles. There has never been an exception in the 140 years for which we have records of stock-market returns. Once the stock market is in a bubble, there are trillions of dollars in Pretend Money in people’s portfolios. They spend that money on good and services and thereby pump up the economy. Then no one wants the bubble to be popped because popping it would bring on an economic crisis.

What we need to do is to explain to people how important it is to exercise price discipline when buying stocks. We now have 34 years of peer-reviewed research showing that stock risk is reduced by 70 percent when investors exercise price discipline (that is, lower their stock allocations as valuations increase).

We know what works intellectually. The problem is that we did not learn what works until 1981, when Nobel Prize Winner Robert Shiller published the research showing how critical it is that all investors always practice long-term timing. Unfortunately, earlier research had suggested that timing might not be required or might not even work. An entire industry was built to promote this wrong-headed approach before Shiller published his research. The last 34 years has been a story of turf battles as researchers have tried to get the truth out and industry leaders have gone to battle with them.

It’s very hard to pop bubbles. Popping them always brings on an economic crisis. There is always going to be huge opposition to the idea of bringing on an economic crisis. The time to stop bubbles is BEFORE they develop. What we need to do is to show people how much sooner they could retire if they followed research-based strategies rather than the Buy-and-Hold stuff pushed so hard by the ethically challenged salesmen who dominate discussion in this field.

We need a national debate on these issues. Shiller predicted the financial crisis in his book, published in March 2000. Most of the explanations for the financial crisis that have been put forward were put forward to score political points. We need to get serious about overcoming the financial crisis. We should be looking to people who know enough about how stock markets actually work to have predicted the crisis long before it hit us and to people who are not compromised by their employment in the stock-selling industry.

Again, this has nothing to do with luck. As a people, we CAUSED this economic crisis. That was not true of earlier financial crises. But this time we had decades of academic research that warned us of where we were headed while we permitted stock prices to rise higher and higher. This is the first ELECTIVE economic crisis in our history. We should all pull together to get the work done to insure that it is the last.

The good news is that we on the verge of solving the problem of the boom/bust cycle. We will all enjoy stock investing much more once we are able to invest in a way that is truly smart and simple and safe. Nothing but the popularity of Buy-and-Hold stands in our way at this point.

Rob

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

I would like to be able to fly like superman, have more money than Bill Gates and be able to look like I am 25 for the rest of my life, but we all can’t expect our fantasies to be reality, right?

This comment goes to what I mean when I say in response to all of your intimidation tactics that I am going to continue posting honestly because I love my country.

We clicked in the last piece of the puzzle re how stock investing works in 1981. Computer technology was around in 1981 but was not nearly as advanced as it is today. The most advanced game at the time was probably that Pong thing that bounced a ball from one end of the screen to another.

If you had told people that in 34 years we would be able to talk to our cell phones while we walked to the street and ask them to tell us the location of a restaurant that we wanted to eat it, people would have said what you say here: “I would like to be able to fly like Superman, have more money than Bill Gates and be able to look like I am 25 for the rest of my life but we can’t all expect our fantasies to be reality.”

We need to be cautious re outsized claims. I go along with that one 100 percent. I say that we can reduce the risk of stock investing by 70 percent anytime we choose to open the internet up to honest posting. That is very much an outsized claim. So I have zero problem with the idea of subjecting it to the greatest scrutiny possible. Our system calls for that. So that is 100 percent okay in my book.

That’s not what you Goons have done. You have not subjected the last 34 years of peer-reviewed research to scrutiny. You have flat-out banned discussion of it. You have made clear for 13 years now that anyone who discusses the implications of the last 34 years of peer-reviewed research will see his career destroyed for having done so. Everyone gets a choice. He can silence himself. Or he can see his career destroyed. No other options.

That’s not necessary scrutiny or appropriate skepticism. That’s financial fraud. That’s a felony. That’s prison time.

And for good reason.

The computer technology industry is different in an important way from the investing advice industry. The computer technology field was wide open in 1981. Steve Jobs could design a great computer or a great cell phone and sell millions of them and become very rich and change the world.

That’s not the way it works in the investing advice field. If there had never been an industry built around the promotion of Buy-and-Hold strategies, the two situations would be comparable. Had Shiller published his “revolutionary” (his word) research findings in 1961 instead of 1981, we would have seen the same growth in the investing advice field in the following 34 years that we have seen in the computer technology field from 1981 through today. That’s not the way the cards were dealt. The research that for a time appeared to support Buy-and-Hold was published in 1965 and an entire industry was quickly built around it and so when Shiller published his “revolutionary” research in 1981 there was an entire industry of “experts” already in place to tell him to take his revolutionary insights and go pound sand with them.

I don’t buy it, Anonymous.

Valuation-Informed Indexing is a dream come true. It is Investor Heaven. It is what Jack Bogle was trying to put together when he put together Buy-and-Hold. VII is JACK BOGLE’S DREAM COME TRUE.

There is 34 years of peer-reviewed research showing that. There are 13 years of internet discussion-board conversations showing that. There are HUNDREDS of experts (take a look at the slider at the top of every page of this web site) saying that. It’s all 100 percent amazing and 100 percent fantasy and 100 percent unbelievable and 100 percent true.

Our economic system is built around the idea of fantasies coming true every now and again and making all of us richer as a result. That’s the entire freakin’ point of our system!

Most fantasies do not come true. You’ve got me re that one. But some do. Letting the ones that can come true actually come true is important stuff. It is by permitting such fantasies to come true that we have been achieving that 6.5 percent real return for 140 years now. Keep everything the way it always has been, never permit a new idea to develop before our eyes, and you lose that 6.5 percent annual growth that permits us all to retire and live off our savings some day. Take away the possibility of fantasies coming true and nothing in this society works.

If you want to add a line to the bottom of my posts saying “This guy believes in ideas that offer such amazing benefits to every single person alive on Planet Earth today that it is hard for many of us to believe that these ideas are anything more than fantasies,” I have no problem with it. These ideas are so “revolutionary” (you know whose word that is) that I freely acknowledge that they strike many people as nothing more than fantasies.

We are on the same page up to that point.

Where we get on different pages is when you block people from learning about the ideas through the use of death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. If the ideas lack merit, they will be shot down in the court of public opinion without any need for the use of any such intimidation and deception tactics. if the ideas possess merit, widespread discussion of them will take us to a place where everyone in the field will be endorsing them in time and then working together with all the rest of us to promote them. That includes my good friend Jack Bogle. And Bill Bernstein. And Larry Swedroe. And Mike Piper. And Bill Shultheis. And on and on and on and on and on.

The advance we are talking about is so huge that it appears to be a fantasy.

But our nation is built on the idea that fantasies come true on a regular basis so long as we all follow the laws that we have enacted as a society to govern out interactions with each other. Putting a man on the moon was a fantasy. Until it wasn’t. Electing a black man President of the United States was a fantasy. Until it wasn’t. Curing polio was a fantasy. Until it wasn’t.

I like to see fantasies come true. Sue me.

Our system permits us all to do work helping fantasies to come true.

It’s hard work. We have to overcome a good deal of natural skepticism to make it happen.

That’s understood. That’s the way it works.

We do NOT have to overcome death threats. We do NOT have to overcome threats of unjustified board bannings. We do NOT have to overcome tens of thousands of acts of defamation. We do NOT have to overcome threats to get academic researchers fired from their jobs.

We have laws in place to protect us when Goons like you employ tactics aimed at stopping millions of us from enjoying the fantasy come true that took place before our eyes when Shiller published his “revolutionary” (his word again!) research showing us how to reduce the risk of stock investing by 70 percent.

I am driving the History Train and you Goons are lying in the tracks trying to block it from going forward. You will end up getting run over/sent to prison because this train isn’t stopping.

It can’t stop. There are millions of middle-class people investing in stocks to finance their old-age retirements. If this train stops, all of those people are thrown out in the cold without any money in their old age. That’s not an acceptable result. The train will continue on down the track.

Slowly as all get-out, it would seem! I hate that part!

But it will continue down the track all the same. We will make fantasies come true. As we have been doing in this country for 240 years now.

That’s the deal.

I love you all. I will do anything I can to help you starting the minute you agree to be bound by the laws of the country in which you live.

But I will not post dishonestly re the numbers that my friends use to plan their retirements. Going to prison is not on my bucket list. So you are going to have to find someone else re that one.

I naturally wish you all the best that this life has to offer a person regardless of what investing strategies you elect to follow.

Rob

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

The market crash which, in part — not in whole — caused the Great Depression, was due to mass and hyper-speculation — NOT Buy-and-Hold!

So you say, Honest.

The P/E10 value prior to the crash was 33. That’s more than double fair value. That’s the highest P/E10 value we have ever seen in U.S. history prior to the late 1990s.

Market prices are self correcting so long as all investors know that it is in their best interests to exercise self-discipline. The investors of that day were NOT lowering their stock allocations in response to price increases. If they had been, the P/E10 value never could have gone that high. They were following Buy-and-Hold strategies, not Valuation-Informed Indexing strategies.

To be fair to the Wall Street Con Men of that day, we did not then have 33 years of peer-reviewed research showing that the widespread promotion of Buy-and-Hold strategies ALWAYS causes a price crash and an economic crisis. We do have that today.

Rob

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

I like how every post is now about yourself. And I am sure you have a 20-30 paragraph explanation for it and it all makes sense.

I do.

The posts that write today are intended for viewing after the next crash, Laugh.

We need to help people understand what happened to them. We don’t just want to say “oh, people messed up, sorry!” We need to go into as much detail as possible. Not because we want to linger over bad stuff. Because we want to AVOID bad stuff in the future. We have to make a complete case as to why it is important that investors focus on valuations ALL THE TIME and why it is critical that they make whatever adjustments in their portfolio allocations AS SOON AS THEY ARE CALLED FOR because, if they wait, it will get harder and harder to make those adjustments.

Buy-and-Hold is a trap. It does seem to work for periods of time. But the more people there are who come to believe in it, the higher valuations go. The higher valuations go, the more frightened people become that everything is going to collapse. And the more frightened people become that everything is going to collapse, the more people suppress any honest, research-based comments. Each aspect of the thing feeds into all the others.

And the more you struggle to get out of the trap, the tighter it pulls in on you. I believe that you Goons would permit honest posting on SWRs today if we could do it over. But to come clean today would require more than that. You would have to own up to the threats made to silence Wade Pfau and lots of other stuff. If you didn’t want to own up to the errors in the Old School SWR studies, you REALLY don’t want to own up to threatening academic researchers. The evidence that the numbers in the Old School SWR studies are wrong is now a mountain. But the trap is harder to get out of than ever before.

Not all of the posts are about me. But a lot of them are. My story is a compelling illustration of how things work when a large number of investors come to believe that Buy-and-Hold strategies might work. I should pose no threat to anyone. I possess no expertise in this field and I don’t claim to possess any. So why would my words pose a threat to the Buy-and-Holders? Why would they care enough to threaten to kill my wife and children if I continued posting honestly?

The threat exists because long before I came on the scene lots of other good and smart people tried to tell us all the truth about stock investing and were suppressed. By the time I came along the Buy-and-Holders were already insanely defensive. I didn’t know it. My sense is that a lot of them didn’t really know it. But they sensed that Shiller’s work was dangerous stuff and that anyone trying to discuss it had to be silenced pronto. So Buy-and-Holders started lashing out at me within five minutes of my famous post of the morning of May 13, 2002.

This is not an intellectual debate. There are important points of an intellectual nature in play. But all the evidence re the intellectual matters are on one side. So that part is easy. The reason why things have played out as they have is that the emotion is 50 times more intense on the Buy-and-Hold side than it is on the Valuation-Informed Indexing side, which has not yet won the strong loyalty even of those who generally believe in it.

My story illustrates well all the points that most need to be heard.

Other stories do too. Wade’s story obviously makes very important points.

And even the stories of you Goons make important points.

All of those stories are more important today than the substantive, intellectual points. The substantive, intellectual points are the good stuff. That’s the stuff we want to work up to. But we need to clear out the emotional stuff to get to the place where we all deep in our hearts want to go.

I wish you well, Laugh.

Rob

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

A lot of people think that I am pretty darn harsh in my assessments of the Buy-and-Holders. I say that there is zero chance that Buy-and-Hold can ever work for a single long-term investor. I say that the relentless promotion of Buy-and-Hold strategies was the primary cause of the economic crisis. I say that a good number of the Goons will be sent to prison following the next price crash. I say that Old Saint Jack himself is at risk of being found guilty of financial fraud. And on and on and on. You get the idea.

I stand by all those statements.I don’t make statements like that lightly. It took me years to understand what is going on here well enough to understand that statements like that MUST be said if we are to overcome this economic crisis. Once I saw clearly that that was the case, I started saying things like that and without apology.

Those statements are NOT truly negative statements. On the surface they obviously are. But when you acquire a deep knowledge of what is going on here, you come to see that those statements have a positive side to them. I am going to try to explain to you what I mean because you seem to have at least some willingness to learn the full reality here and this aspect of things is very, very, very important.

The Buy-and-Holders are good people. The Buy-and-Holders are smart people. Eugene Fama DESERVES the Nobel Prize he was awarded last year. Jack Bogle is properly viewed as a hero to millions of middle-class investors. He is a giant. He is the second most important figure in the investing advice field. The Goons who terrorize this board on a daily basis have helped me appreciate about a dozen different, important insights. They teach me new stuff all the time.

Huh?

I thought I said that they threatened to kill my wife and children. Now I am saying that they teach me stuff all the time. That makes no sense. That cannot be. That’s crazy.

It is a little on the crazy side. But it is so all the same. To really understand why you were banned at that board, you need to go all the way back to Adam Smith. Adam friggin’ Smith! That’s colonial days! Adam Smith was a very smart guy who got one thing terribly wrong. And his mistake was copied by hundreds of thousands of economists through the years. And now, about two Centuries later, the false idea that Adam Smith has put in millions of minds had led to you, Canuck, being improperly banned from an internet discussion board. That’s really what happened.

Adam Smith is the guy who is credited with putting forward this idea that humans act in their self-interest when making money decisions. Our entire economic system is built on that idea. And it is wrong. It is not so! That’s why we are in an economic crisis today. We need to fix that error. And all the schools teach that error in all the textbooks. That’s why it is so hard to get it fixed.

The most likely annualized 10-year return on the purchase of an index fund in 2000 was a negative 1 percent real. That’s just math. You do a regression analysis on the 140 years of return data available to us and that’s the number you get. TIPS were paying 4 percent real at the time. So you gained 5 percentage points of return by switching from stocks to TIPS. Not for one year. For 10 years running. That’s a total differential of 50 percent of the initial portfolio value. Increasing your portfolio value by 50 percent lets you retire years sooner, even decades sooner. It’s investor heaven!

So why didn’t millions of investors make the switch?

And why didn’t thousands of experts tell them to do so? Experts want to become famous, right? Showing people how to retire years or even decades sooner would certainly do the trick. So why didn’t we have experts falling over each other to spill the beans back in 2000?

It’s that darn Adam Smith fellow who messed everything up!

Smith taught that we are all rational people making rational choices re our money. That was always wrong. We are PARTLY rational people but we are also largely emotional people. It didn’t matter so much for many years that the economists got this wrong because most people don’t pay all that much attention to what economists say. They say silly stuff all the time. But so long as it doesn’t hurt people, who really cares? They make up silly stories in their ivory towers and the world keeps on turning just as before. No biggie.

That was all so UNTIL EUGENE FAMA TOOK SMITH”S IDEAS AND APPLIED THEM TO HIS THEORY ABOUT HOW THE STOCK MAKRET WORKS.

That’s what Fama did. That’s what Buy-and-Hold is. Buy-and-Hold is the theory of how the market works that is rooted in the idea that investors are RATIONAL actors. They are NOT. But Buy-and-Hold PRETENDS (with no evidence whatsoever — there has never been a single study supporting the Buy-and-Hold concept and this reality can be checked by anyone who cares to know for sure) that they are. And, unlike the Rational Man theory of economics, when people invest their retirement money pursuant to this “idea,” real stuff happens. Real bad stuff.

Fama took Smith’s idea and gave it application in the real world. And the losses that inevitably followed have already been large enough to bring on the biggest economic crisis in U.S. history. And we have another 65 percent price crash on the upcoming agenda! Flawed ideas applied in the real world can have really, really, really bad consequences for millions of people.

Okay.

I said that this stuff has a positive side to it.

The positive side is that at least the Buy-and-Holders were trying to make stock investing a scientific enterprise! No one had ever done that before. Prior to Fama, most investing advice was guesswork. That’s not so today. Today there are studies. The studies get all the numbers wrong. That’s unfortunate. But now that we all accept the idea (first advanced by our Buy-andf-Hold friends!) that investing analysis should be rooted in peer-reviewed research, what is to stop us from permitting HONEST AND ACCURATE research, research that corrects the errors made by the Buy-and-Holders and that thereby helps millions of middle-class people to invest far, far, far more effectively than they ever have before.

I am the co-author (with Wade Pfau — Wade holds a Ph.D. in Economics from Princeton) of peer-reviewed research showing investors how to reduce the risk of stock investing by 70 percent. Not bad for a fellow who never went to investing school and never managed a big fund and whose only expertise in this field is that he figured out how to get his words posted to the internet!

If I had shown people how to reduce the risk of stock investing by 10 percent, I would be the toast of the town. Everyone would love me to death. The Buy-and-Holders hate me with a burning passion because showing people how to reduce the risk of stock investing by 70 percent makes them “look bad.”

But so what, you know?

Are they going to be able to keep people from learning about that research after the next price crash? Somehow I doubt it. That research is going to get written up on the front page of The New York Times someday and then we are going to see the biggest Learning Experience ever achieved in this field. Everything is going to be turned upside down. And in a very, very, very positive way.

The Buy-and-Holders are good people. They WANT to do good.

They are in pain because they messed up in the creation of their first-draft effort at a research-based investing strategy.

We need to overcome the Goons. The sooner we do so, the shorter their prison sentences will be. So that’s a win/win/win/win/win.

Once we overcome the Goons, we are all going to some amazing places. Places where it is possible for us all to retire many years earlier and places where investing in stocks is no more risky than investing in Certificates of Deposit.

What I am saying here is not opinion. It is all research-based. It is freakin’ math!

How is it possible?

That’s the one that trips everybody up. No one ever points to any flaw in the Logic Chain I use. What people do is ASSUME that my claims are not good ones because they are so darn grand (so people call them “grandiose”).

How is it possible?

It’s possible because we are overturning that darn Adam Smith guy. We are keeping his good stuff, which is very good indeed. But we are adding a behavioral finance element to it so that the entire thing works for the first time in history. That’s no small change. That is the missing piece, the mistake that has been making stock investing unnecessarily risky for hundreds of years now, the piece that has caused four of the four economic crises suffering in the United States since 1870.

Remember, the Buy-and-Holders are good people. So the Buy-and-Holders want this.

We have no opposition. We cannot lose!

Our only opposition is a temporary force. It is that voice within the Buy-and-Holders that says: “I cannot acknowledge having made a mistake, it is too, too terrible a reality!”

All that shows is that the Buy-and-Holders deep in their hearts want to get it right.

Which is a good thing.

The Buy-and-Holders are going to be switching sides in the not-too-distant future.

I am going to take a break to cool off a bit. Then I will be back with some exploration of the question of HOW we are going to make the Buy-and-Holders flip.

Rob

Set forth below is the text of a comment that I recently posted to another blog entry at this site:

Say Rob,

Let’s assume you get your wins tomorrow — how does the world avoid the 65% crash you say is imminent?

The P/E10 value is in the mid-20s. Fair value is 15. We cannot avoid the fall to 15. It is the market’s purpose to price things properly. We all should want stocks to be priced properly. Any efforts to avoid the drop to 15 are just a delaying action. So we are going to take a hit no matter what.

But we can survive a drop to 15. It won’t be perceived as good news by a lot of people. But we can handle it. It is not the end of the world.

A further drop to 8 is MUCH, MUCH worse. As people’s accounts are depleted, each new dollar of loss hurts more. Once we get down to 15, we should want the pain to stop. Drops below that will be devastating.

Now –

A P/E10 of 8 is just as crazy as a P/E10 of 30. It’s insanity. There is no rational reason for us to price stocks at half of fair value. Especially at a time when we need to get the economy going. When we go to 8, we will be deliberately tricking ourselves into believing that we possess less wealth than we really possess. Huh?

When we open the internet to honest posting, we can show people what an amazing deal stocks offer once prices go down to fair value levels. That will cut off the feelings of panic that people will feel if they don’t understand why we have fallen to 15. And then we should show them how the value proposition gets even stronger when we fall below 15. That will encourage people to buy as prices drop and thereby end the drop.

Do you see?

STOCK PRICES ARE SELF-REGULATING SO LONG AS INVESTORS ARE PERMITTED ACCESS TO THE INFORMATION THEY NEED TO INVEST IN THEIR OWN SELF-INTERESTS.

Recessions and depressions are caused by the widespread promotion of Buy-and-Hold strategies. Once we let people know what the peer-reviewed research says, we have solved the problem of the boom/bust cycle.

It’s all about getting good information out to people.

Rob

Set forth below is the text of a comment that I recently put to the discussion thread for another blog entry at this site:

Market timing schemes

This language shows how profound the bias is that you are working from.

Long-term market timing is paying attention to price. Long-term market timing is price discipline.

Exercising price discipline is a scheme?

I know of no other field of human endeavor in which exercising price discipline is thought of as a “scheme.” Price discipline is what makes markets work. Please show me one other market that functions reasonably well and in which price discipline is not widely exercised.

In the event that price discipline matters as much in the stock market as it does in every other market that has ever been created, we should expect the widespread promotion of the idea that exercising price discipline is not required when buying stocks to bring about the collapse of the stock market, resulting in collective losses large enough to bring on the Second Great Depression.

The thought occurs that perhaps we should all be permitted to question this “idea” that the stock market is the only one that has ever been created in which the exercise of price discipline is not essential (or, heaven help us all, is actually a bad thing!).

What if these far-fetched ideas produce the same results in the real world this time that they have produced on every earlier occasion in history in which they were tried, Laugh? I think it would be fair to say that we will all be living in very dark days if that ends up being the case. Tens of thousands of businesses will fold. Millions of workers will lose their jobs. The deficit will double or triple as we try to help out the millions of people left homeless in their old age because they believed that the people pushing this smelly Get Rich Quick garbage might be shooting straight.

I will continue posting honestly.

I naturally wish you all good things.

Rob