A Rich Life

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

We’re All Better Off As a Result of the Stock Crash

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I recently wrote a Guest Blog Entry for the Money and Such blog entitled We’re All Better Off As a Result of the Stock Crash.

Juicy Excerpt: If you have one-third less in your portfolio today than you had pre-crash, you have a better chance of meeting your retirement goal in 10 years than you possessed pre-crash.

Juicy Excerpt #2: We need to assure people to persuade them to stay invested in stocks. But we cannot assure them without letting them know how important valuations are to determining long-term returns. And doing that means undermining the argument for Passive Investing, the model for understanding how stock investing works that most experts have been promoting big time for three decades now.

The Greaney Goons made an appearance in the comments section. Shadox shut them down.

Juicy Excerpt: OK, guys. Take it outside please. You may not agree with the posts, but please be courteous to my guest posters.

The right stuff.

Cash Is A Strategic Asset Class (Take One)

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I recently posted a Guest Blog Entry at the Out Of Your Rut blog. It’s called Cash Is a Strategic Asset Class.

Juicy Excerpt: Nobody makes much money promoting TIPS or other cash-like investment classes. The “experts” in the investing advice field HATE cash. No commissions. No acceptance into the “Experts” Club. No appeal to the Get Rich Quick impulse lurking within each and every one of us that tempts us into ignoring price when choosing our investment classes.

Keith Mercadante, the blog owner, put forward some kind words in the introduction to the Guest Blog Entry.

Juicy Excerpt: Rob offers a…refreshing approach that offers a counter to the prevailing financial culture that recommends heavy and permanent positions in stocks—an investment class which is more risky than most people commonly understand.

Advice on Options from a Fellow Who Knows Nothing About Options

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I recently posted a Guest Blog Entry at the Options for Rookies blog. It’s called Advice on Options from a Fellow Who Knows Nothing About Options.

You won’t see the blog entry if you follow the link. Mark Wolfinger, the owner of the blog, explains why in comments that now appear at the link under the headline “Guest Blog. Deleted.”

Juicy Excerpt: Permitting this specific guest blogger to post here has opened an unintentional can of worms. I do not want to be involved in his controversies.  Thus, the post, along with all related comments have been expunged as of 7/20/2009.

Mark expressed enthusiasm re the Guest Blog Entry at the time he posted it. There were several excellent comments filed in connection with it. Another blogger who linked to the Guest Blog Entry also expressed positive comments. A community member who saw the Guest Blog Entry (“DJ”) checked out this site, became excited about what he found here, and asked a good question about Valuation-Informed Indexing at this blog.

Mark’s concerns arose in reaction to a second comment put forward by “DJ.”  DJ followed up his constructive post with a defamatory post based on claims advanced by the Greaney Goons. Mark responded by saying that “I have research to do.” I put up a post setting forth links to articles at this site that detail the seven-year-long Campaign of Terror against the Retire Early and Indexing discussion-board communities led by John Greaney and Mel Lindauer.

Mark and I engaged in extensive e-mail communication re what he should do if the Goons appeared at the site after I posted a link to it at this blog. He expressed concern that his readers would be repulsed by the sewage. I said that I thought that made perfect sense given that his blog is a money-related blog and that the sort of ugliness we have seen put forward by Greaney and Lindauer “defenders” obviously does not belong at such a blog. My sense is that he was extremely concerned about what the Goons would do to him and his site in the event that he deleted their comments (Mark would not say it this way, but that is the best take that I can offer on the comments he advanced in his e-mails, which were intensely emotional in nature).

I think this experience illustrates well why we need to have the same defamation laws that apply in all other areas of life activity apply on the internet as well. People fear the tactics employed by internet predators. All civilized peoples have adopted laws protecting people from these tactics and we very much need to make such laws applicable on the internet. I am planning to open a new section of the site in months to come that will focus on the need for blog and site owners to unite in support of legislation in this area. I expect that I will report more on my correspondence with Mark in an article that will be posted to that section of the site.

Keith Shepard offered his thoughts on the Guest Blog Entry at his own blog.

Juicy Excerpt: I found that I tend to follow other traders on Twitter who confirm my own market beliefs. After realizing this, I made an effort to follow other traders who trade opposite of my style and beliefs. Not that they’ll influence my trade plan, but that they’ll give me a perspective I lack…and perspective has always grounded me during times of trading euphoria or when I think I’m invincibly right.

Taking the other guy’s thoughts into consideration when forming your investing strategies — imagine the possibilities!

DJ offered a nice common-sense observation re the safe withdrawal rate “controversy” in the comments section at the Options for Rookies blog.

Juicy Excerpt: Choosing safe withdrawal rates based on data rather than a rule-of-thumb seems like such a no-brainer when you think about it! 

That sounds right to me. Perhaps I’m just not “expert” enough to appreciate the benefits of getting all the numbers wrong when putting together a retirement plan!

Here is the text of the Guest Blog Entry:

I don’t know anything about options. Yet I asked Mark if I could write a guest blog entry here, a site focused on options.

Huh?

I’ve learned some things about investing over the past seven years that I think can benefit all investors, even those using strategies that I know little about.

What I learned is that investors are nutso.

I’m not kidding. We’re nutso. Bonkers. Wacko. Touched.

I used to post at a Motley Fool board on early retirement. Our discussions frequently focused on studies that purported to tell us the safe withdrawal rate, the amount that we could take out of our portfolio each year without risking the long-term survival of our retirement plan. I discovered that there were errors made in the studies that caused the numbers to be wildly off the mark. I thought that I was helping out my fellow community members to let them know the correct numbers.

Some thanked me. A good number didn’t.

Actually, there was a group that threatened to kill me and my family members and the guy who delivers our mail too. It turns out that some people very, very, very much do NOT want to know the right retirement-planning numbers.

The studies have never been corrected in the seven years since. I’ve notified several big-name experts. They are not concerned. They do not deny that the numbers are wrong. In fact several of them acknowledge this. But they don’t see any pressing need to push for corrections. It turns out that getting the retirement numbers right is a low priority in the investment advice business.

Why?

Because we’re nuts.

And the experts know it.

What some of the experts have told me is that it is not realistic to expect them to report numbers accurately. It upsets people. People developed ideas about stock investing during the wild bull and they don’t want to feel a need to change those ideas. To point out to them that the numbers in the studies are wrong makes them feel pressed to look at the right numbers. It’s rude. It’s not done.

Investing is a highly emotional endeavor. That’s what it comes down to. We like to think that we’re trying as hard as we can to get things right. The reality is that 80 percent of the effort we put into learning about investing is directed not to learning new stuff but to rationalizing old beliefs that we don’t want to give up just yet.

The implications of this insight reach in a hundred directions. If most of us are not even trying to learn the realities, can it be said that there is even such a thing as a true investing “expert” today? I say “no.”

Investing is done by humans. Humans are not entirely rational creatures. We can never learn how to invest through logic alone. We are going to need to bring psychology into the discussion. Behavioral finance is the future.

I don’t know exactly how these thoughts affect investors who use options. But I know that they do. Options investors suffer from a disability they share with all the rest of us — they’re human.

It matters.

A lot more than 90 percent of today’s investing “experts” realize.

Addendum: This matter came up in the discussions held today at the Oblivious Investor blog.

Passive Investing Is for Extremists: The Critique

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Shadox at the Money and Such blog recently posted a blog entry entitled Passive Investing Is for Extremists: The Critque.

Juicy Excerpt: His main claim relates no so much to how you invest in stocks, but rather to the percentage of your portfolio that is invested in this asset class, regardless of which stocks or stock funds you put your money into. I think that it is more correct to say that Rob is against passive asset allocation, than he is against passive investing as I understand it.

Shadox became my favorite personal finance blogger with the posting of his skeptical but fair and balanced critique.

Juicy Excerpt: I’ve been writing about these issues on the internet on a daily basis for seven years now. It has been a rare event in that time for me to see someone coming at these questions from the other side to respond to my presentation of them in a manner as intelligent and balanced as yours. I am not a flatterer. I say that in all sincerity. I am very impressed.

This guy is the real turtle soup and not the mock. He’s into Learning Experiences.

The Difference Between the Multiply-by-25 Rule and the 4-Percent Rule

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I recently wrote a Guest Blog Entry for the Moolanomy blog entitled The Difference Between the Multiply-by-25 Rule and the 4-Percent Rule.

Juicy Excerpt:  I believe strongly that the 4-Percent Rule at some times overstates and at other times understates the amount needed for a safe retirement; at times of high valuations the true safe withdrawal can drop to as low as 2 percent and at times of low valuations it can rise to as high as 9 percent. The Multiply-by-25 Rule isn’t by itself perfect either. There are times when obtaining a 4 percent return is child’s play and there are times when you need to go hunting for a mix of asset classes that will provide that level of return.

The Bankers Did Not Do This To Us!

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I recently wrote a Guest Blog Entry for the  Weakonomics blog entitled The Bankers Did Not Do This to Us!

Juicy Excerpt: Did they stick all the money in suitcases and catch a plane to another time zone?

Some good comments.

Juicy Excerpt: I’m getting more and more tired of people shoving blame back and forth. I frankly, could care less whose fault it is. I’d rather spend time trying to find the best solution possible.

Passive Investing Is a Strategy for Extremists

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I recently wrote a Guest Blog Entry for the “Money and Such” blog entitled Passive Investing Is a Strategy for Extremists.

Juicy Excerpt: The word “passive” sounds neutral. It sounds moderate. I don’t think the investing philosophy is that at all. The investing philosophy argues for taking no action whatsoever when the risk of holding stocks increases dramatically.

This is the blog entry that was viewed by the owner of the “Lazy Man and Money” blog as “too hot to handle.” 

Timing Never Works And, Even If It Does, You Want to Make Sure Not Ever to Tell Anybody

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I recently wrote a Guest Blog Entry for the Blunt Money blog. It’s called “Talk Back to the Investing Experts.”

Juicy Excerpt: Investing experts are like everybody else. They are flawed humans. They get things wrong. And they are inclined not to admit it too readily. They do more harm to their reputations in the long run by failing to do so, of course. They need our help.

Does that sound to you like the sort of thing that might undermine national security? Does it sound like hate speech? Does it sound like the sort of thing that might destroy the innocence of young children?

When I checked the link to the blog entry, the article no longer appeared. I’ve been “poofed” again. My guess (I didn’t bother spending any time checking into it this go-around) as to why the blog entry no longer appears where it once appeared is that it has something to do with the events described in Tuesday’s blog entry.

The Passive Investing advocates base all their advice on the idea that investing is a 100 percent rational endeavor. It would be fair to say at this point that I am beginning to entertain some doubts.

Only You Can Prevent Forest Fires — And Bull Markets

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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.