A Rich Life

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

Sustainable Personal Finance Blogger: “Rob Should Be Able to Present Contrary Opinions Without Being Banished By the Weak & the Scared”

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Set forth below are some words posted yesterday by the owner of the Sustainable Personal Finance blog to a thread at the Canadian Finance Blog:

Tom,

My take, and I’ve experienced this in the past (example below) is that anyone who is adamantly offering an opposing opinion to what the masses believe/are-led-to-believe is “the enemy”. Proponents of buy-and-hold will use an excuse such as “you are cancerous to our community” instead of opening their minds to the possibility that there is not one, and only one, approach to investing that can actually work.

Rob does not tow the company line nor does he believe that buy-hold is in the best interest of the “average” investor. He (from what I understand) believes the people who re-inforce buy-hold, aside from perhaps Buffet, don’t actually employ such a strategy – they know of VII and use it in some form or the other and are part of the small percentage of people out there who truly succeed in the market – not just match the market.

While I wasn’t “banned” from the forum, some time ago I took a stance against all the boys-with-their-toys in a thread @ RedFlagDeals where I stated (and brought forth viable arguments) that netflix.ca was a waste of money due to the deprecated and obscure content and that Usage Based Billing could come and bite people in the butt big time. I feel that $8 per month is too much for a service greatly in superior to that offered in the US for $1 more. I made an analogy that if I were to offer some of these boys a FULL MONTH worth of the Globe and Mail, but it was content from 2007, would they kindly pay me $8 per month for it? There is entertainment value in old news and older lifestyle stories, so why isn’t this a service that exists? Cuz it SUCKS. Anyhow, to stop rambling – the result of my disagreeing with the masses of tech geek nerd kids who have to have the newest toy always – I was admonished as a “troll” who provided no value to the forum blah blah blah.

Results? Increasingly in that thread people posted they were quitting the service. Why? Content was deprecated and obscure, they didn’t need to waste time watching crap tv/movies and then … you got it … the CRTC approves usage based billing.

So all that being said (I feel my response may be longer than some of Rob’s!) the fact is Rob has a differing point of view that upsets people who have been inandated with the buy-hold strategy and after enough complaints from the masses the “powers that be” ban him from their sites. They can’t handle the heat (or perhaps the truth).

Personally, i’m not entirely sure Rob is correct. However, I do like to read differing opinions to allow me to make my own valuations and judgments that I can live with. I had Rob guest post on our site and have read many more of his articles as well. Still up in the air, but he at least deserves to be able to present contrary opinion / ideas / theories w/o being banished by the weak and the scared.

Tom Drake of the Canadian Finance Blog: “Why the Bans?” [But Please See Note at Bottom of Blog Entry]

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Tom Drake, owner of the Canadian Finance Blog, yesterday put forward the following words in the discussion thread following my Guest Blog Entry titled The Five Big Benefits of Valuation-Informed Indexing:

Hi, thanks for the informed discussion. After reviewing some of this material I feel like I am missing something. The approach seems to jive with all the value based investing learning I have been engaged in; including Ben Graham, Jarislowsky, Kyle, Green, Motley Fool, Josh Peters, Geraldine Weiss, Browne. Sounds like bottom up value investing to me, entry point very important, adjustments to allocations important. So why all the controversy? Why the bans? What am I missing from the strategy?

Thanks

Tom

Set forth below are the words that I posted in response:

That’s a super question, Tom. Thanks for asking it.

Valuation–Informed Indexing is a COMBINATION of the insights of Buffett (Value Investing) with the insights of Fama/Malkiel/Bogle (Buy-and-Hold). I view Value Investing as the best of all investing strategies. I also think that Bogle did something huge in coming up with an approach simple enough to permit the typical middle-class worker (who has little desire to research stocks) to tap into the benefits of stocks. But Buy-and-Hold cannot work long term without a valuation component. The idea here is to make Buy-and-Hold workable in the real world.

In an intellectual sense, there is nothing even the slightest bit controversial here. You are 100 percent right about that. None of the people who insist on bans dispute that valuations affect long-term returns. There is no disagreement as to what the research says.

The controversy is rooted in concerns over the practical implementation of the finding that valuations affect long-term returns. When financial planners use safe withdrawal rate analysis to help people plan their retirements, should they include a valuation adjustment in the analysis? If no adjustment is included, the SWR is always 4 percent. If one is included, the SWR varies from 2 percent at times of high valuations to 9 percent at times of low valuations. For someone with a $1 million portfolio at the time of retirement, that’s the difference between living on $20,000 in every year of the rest of his life or living on $90,000 in every year of the rest of his life.

If valuations really affect long-term returns (there is today a mountain of research showing that they do), the Old School SWR studies have caused millions of middle-class people to plan retirements that are almost certainly going to fail. And the asset allocation advice given in 90 percent of the investment books available today is wildly wrong. And the risk management advice is wrong. And on and on.

To understand what is going on, you need to appreciate the history of how our knowledge of how investing works has developed over time. Research showed in the 1960s that short-term timing never works. This was a huge advance. Unfortunately, most researchers of the time did not see the need to distinguish short-term timing from long -term timing. So the interpretation of the finding that short-term timing does not work was that “timing doesn’t work” (the finding is correct but the interpretation is wildly wrong).

Then Shiller did research showing that long-term timing ALWAYS works and in fact is required for long-term success. This finding is ALSO of huge importance and needs to be integrated into the mix (investors need to be told both to avoid short-term timing and always to be certain to practice long-term timing). But the Buy-and-Hold advocates don’t like even a tiny little bit the idea of acknowledging that they made a mistake.

You are right to note that Buffett (and all Value Investors) were aware of the importance of valuations going back to the first day. Had Fama and the others paid more attention to Buffett, they never would have gotten us into this mess. They didn’t. They created academic models that improperly ignored Buffett’s insights.

Shiller’s research essentially incorporates Buffett’s insights into the academic research. We now have two camps taking the academic research down two opposite paths. The Fama camp lives in the imaginary world where the market is efficient and thus valuations don’t matter. And the Shiller camp lives in the real world where valuations are the most important thing that an investor needs to look to in setting his stock allocation.

Both camps are analyzing the same data and yet coming to wildly different conclusions on every practical investing question. The reason is that they are starting from opposite premises. One camp calculates all its numbers with zero consideration of valuations. The other includes valuations in its analyses and thereby learns that valuations are by far the most important factor bearing on just about every question examined.

There is zero dispute re the facts. But there is a HUGE controversy as to whether the facts as we know them today may be REPORTED on public investing boards and blogs.

Rob

Note: It turns out that it was not Tom Drake who wrote the words that are the focus of this blog entry. It was another community member named “Tom.” Knowing that Tom Drake is the owner of the blog, I jumped to the improper conclusion that it was Tom Drake who wrote the words. I apologize to Tom Drake, to the other Tom and to all community members who have read the blog entry for the confusion I have caused.

Tom Drake told me in his note that he has no objection to being identified as the author of the words put forward by the other Tom. Tom Drake is as confused as the other Tom (and as many others, no doubt) as to why there is a Ban on Honest Posting on the realities of stock investing in effect today at numerous discussion boards and blogs. The reason why I put forward the blog entry when I was under the impression that the words were those of Tom Drake is that it is a significant development that there is now an influential blogger willing to ask questions about the ban. For many years now many personal finance bloggers have kept mum about this.

Given that Tom Drake says he agrees with the author of these words, I have elected to leave the headline of the article as I wrote it while adding this note explaining that he was not in fact that author of them at the time they were put forward in a blog comment (but signed onto them only afterwards).

I look forward to the day when the entire Personal Finance Blogosphere takes a strong stance in opposition to continuation of the Ban on Honest Posting, permitting all of us to direct our full energies to examination of the important substantive issues in question here. It is my sense that we are making slow progress in our journey to that wonderful place where we all deep in our hearts want to be.

Jim Yih, Owner of Retire Happy Blog, Jokes (in a Warm and Life-Affirming Way) About the Ban on Honest Posting

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Jim Yih, owner of the Retire Happy blog and a regular contributor at the Canadian Finance Blog, joked about the Ban on Honest Posting in a comment he posted to this week’s entry of my Investing: The New Rules column at the Death by 1,000 Papercuts site.

The column is titled How to Get Banned from 15 Internet Sites Without Even Trying and tells the story of the nine-year-long Campaign of Terror by Buy-and-Hold Dogmatics against the Retire Early and Indexing discussion-board communities in a lighthearted way. I mentioned in it my plan to contact the good people at the Guinness Book of World Records and seek the addition of a category for “Most Times Banned From an Internet Discussion Board or Blog Without Ever Having Put Forward an Abusive Post.” Jim commented: “Hey Rob, If you really go after the Guinness thing, let me know and I’ll ban you from my site as well!”

This is a significant development. Big changes in communities are often not achieved through frontal attack but through a shifting in tone. For Jim to work up the courage to joke about the Ban on Honest Posting indicates that responsible members of the Personal Finance Blogosphere are becoming increasingly sickened by the deception and intimidation and defamation and word game tactics that have been employed by those posting in “defense” of Lindauer and Greaney. We are making slow progress on our long journey to a very wonderful place that will someday be seen as having been well worth it all even by the Internet Sewer Rats today leading the attacks against us.

My guess is that Jim learned about the column by his participation on the Twitter social networking service. I tweeted a link to the column that was retweeted by the owner of the Balance Junkie blog. Balance Junkie is a well-regarded member of the Personal Finance Blogosphere. My guess is that Jim follows her tweets and retweets. So, as has been true of so many of the advances we have enjoyed over the first nine years of our discussions of the realities of stock investing, this was very much a community effort.

Jim does not share all my views on the dangers of Buy-and-Hold. However, he respects my right to hold those views and the rights of the thousands of our fellow community members who have expressed a desire that honest posting be permitted at every investing board and blog on the internet. Set forth below are some Juicy Excerpts from a conversation that Jim and I held last week at the Canadian Finance Blog in the comments section for an article titled Five Big Flaws of Buy-and-Hold.

There’s a reason why we have as a society made Free Speech one of our most widely celebrated cultural norms. Listening to what the other guy has to say is what has always worked in the long term. I have a funny hunch that we are not going to be willing to give that one up too easily!

Juicy Excerpt #1: I’ve spent the last nine years of my life exploring the flaws of Buy-and-Hold. My view is that this is the purest and most dangerous Get Rich Quick scheme ever concocted by the mind of man (I don’t say that it was designed to be this — only that this is in an objective sense what it is). I could write a book listing 500 big flaws of Buy-and-Hold (and am in the process of doing so!).

Juicy Excerpt #2: Hey Rob, Thanks for voicing your passion. You make some great points. In changing your stock allocation, are you referring to a form of “TACTICAL ASSET ALLOCATION”?

The benefit of conventional rebalancing is it takes the guesswork out of when markets are over valued or undervalued. What if you are wrong in your guess? How much risk is there in being wrong?

Juicy Excerpt #3: Thanks for your openness to new ideas, Jim. Tactical Asset Allocation is what lots of people call it. My view is that changing your allocation in response to valuations is not tactical but STRATEGIC — your choice as to when to change your allocation is of fundamental importance to the long-term success of your plan, in my assessment. I think that getting your allocation right is the single most important thing in investing and I don’t think there can ever be one allocation that is right at all price levels (because valuations affect long-term returns and thus cause risk levels to vary).

Juicy Excerpt #4: Rob, you don’t just comment. you’ve got enough here for an entire post!

Thanks for sharing. I am interested in seeing your research.

I still believe there is a place for simple conventional re-balancing as a strategy to enhance returns over straight buy and hold. Sometimes, simple is better but I am always open to new thoughts and ideas.

Juicy Excerpt #5: There are millions of smart and good people who strongly agree, Jim. All reading these words need to know that Rob Bennett has been wrong before and it is entirely possible that he is wrong again this time. That goes no matter how many words he puts forward in support of his case.

Thanks for the good back and forth. It makes me happy to see it because that’s what I think helps people the most. When people hear both sides, it forces them to think and that way we all gradually move forward over time.

Juicy Excerpt #6: Thanks for that last comment. I’ve often said it’s not about right or wrong but rather what’s right or wrong FOR ME.

Money and investing is personal. That’s why there is no ONE way to do things. People need to educate themselves, think for themselves and then make good decisions for themselves.

So to re-iterate the words of a smart man . . .

Thanks for the good back and forth. It makes me happy to see it because that’s what I think helps people the most. When people hear both sides, it forces them to think and that way we all gradually move forward over time.

Cheers!

Site Administrator Alex Frakt Doubles Down on Defamation/Intimidation/Deception Strategy at Bogleheads Forum

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Site Administrator Alex Frakt  is doubling down on the Defamation/Intimidation/Deception strategy he has employed to block honest posting on the dangers of Buy-and-Hold Investing at the Bogleheads Forum in the wake of the posting of research by Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan, showing that Valuation-Informed Indexing beats Buy-and-Hold in 102 of the rolling 30-year periods while Buy-and-Hold did better in 8 of the periods. Frakt revealed the decision to double down in a recent post put to a discussion-board thread started by Pfau.

Here are Frakt’s words: “We’ve had to remove a couple of comments and posts from this thread regarding Rob Bennett. I have been in contact with the OP offline and he is now fully aware of hocus’ modus operandi, so there is no further need for these posts. Let’s continue to keep this forum a hocus-free zone. P.S. For anyone confused by this message, I’ll suggest googling “hocomania”.”

Oh, my!

I sent an e-mail to Vanguard Founder John Bogle on July 30, 2009, asking for his help with this matter. I will send John another e-mail today letting him know about this new development and again imploring his help to get the Bogleheads Forum back on a good and productive and honest and life-affirming track.

In the event that there are newcomers reading these words who can make no sense of the insanity, here are some links that provide some background (without quite being able to make it all seem anything less than 100 percent insanity all the same):

1) Here is my bio:

http://knol.google.com/k/rob-bennett/rob-bennett/1y5zzbysw7pgd/4#

2) Here is an article at which I quote the comments of 101 of my fellow community members expressing a desire that honest posting on the flaws of the Buy-and-Hold strategy be permitted at the Bogleheads Forum and indeed at all investing boards and blogs on the internet:

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

3) Here is a blog entry reporting on an interview in which Bogle (Mr. Buy-and-Hold himself!) says that he believes that Valuation-Informed Indexing can work:

http://arichlife.passionsaving.com/2009/07/28/bogle-says-valuation-informed-indexing-can-work/

4) Here is the blog entry at Pfau’s site describing his preliminary research:

http://wpfau.blogspot.com/2011/01/valuation-informed-indexing-preliminary.html

5) Here is my Google Knol explaining the mistake (the Efficient Market Theory) that led people to believe for a time that Buy-and-Hold could work and how the research of Yale Economics Professor Robert Shiller has led us to a better way (if only we could find a way to get the word out to middle-class investors!):

http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#

6) Here is my Google Knol explaining how the bull market caused the economic crisis:

http://knol.google.com/k/rob-bennett/the-bull-market-caused-the-economic/1y5zzbysw7pgd/3

7) Here is a Q&A treatment (more concise!) of how Buy-and-Hold caused the economic crisis:

http://www.passionsaving.com/cause-current-financial-crisis.html

8 ) Here is an article setting forth links to comments by 20 experts illustrating why Buy-and-Hold cannot work and how it caused the crisis:

http://www.passionsaving.com/buy-and-hold-investing.html

9) Here is an article setting forth links to 20 studies showing the Buy-and-Hold is dead:

http://www.passionsaving.com/buy-and-hold-is-dead-part-one.html

10) Here is the blog entry in which I reported on Wade’s research. There are 71 comments to the blog entry, a good number by several of the internet sewer rats and a good number by Wade in which he indicates uncertainty as to whether he faces greater personal risk by aligning himself with the internet sewer rats (obviously not a good idea in the event that word eventually gets out to middle-class investors about their nine-year-long Campaign of Terror against our board communities) or by aligning himself with those who have expressed a desire that honest posting be permitted (obviously not something that is going to make the internet sewer rats and their supporters in The Stock-Selling Industry happy):

http://arichlife.passionsaving.com/2011/01/21/wade-pfau-associate-professor-of-economics-at-the-national-graduate-institute-for-policy-studies-valuation-informed-indexing-works/

11) Here is a blog entry reporting on an earlier statement by Frakt describing me as “a threat to the [Bogleheads] community” because of my firm opposition to Buy-and-Hold Investing:

http://arichlife.passionsaving.com/2011/01/19/bogleheads-org-site-administrator-says-i-represent-a-threat-to-the-community/

12) Here is a blog entry from last week titled “The Mother of Those Two Boys Did Not View Those Death Threats as ‘Alleged.'” One of those cases in which the name says it all, eh?:

http://arichlife.passionsaving.com/2011/01/18/the-mother-of-those-two-boys-did-not-view-those-death-threats-as-alleged/

We can do better than this, people. A lot better!

Rob

Bogleheads.org Site Administrator Says I Represent a “Threat to the Community”

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Alex Frakt, site administrator for the Bogleheads.org forum, acknowledged in a recent post to that forum that I was banned from posting there even though I never violated any of the site’s posting rules. He said that I was banned because I represent a “threat to the community.”

Frakt offered his comments on this thread. The post referring to me (I posted as “hocus” in that community) is the one put forward on January 13, 2011, at 4:14 pm. After saying that the norm in the community is to ban only those who violate posting rules, Frakt writes: “Hocus is the great counterexample, of course. Which is part of the reason why we have an Advisory Panel: to give us the flexibility to deal with threats to the community that do not clearly fall under one of our posted guidelines.”

The history that explains the banning dates back to the morning of May 13, 2002. On that morning, I put a post to the Motley Fool’s Retire Early board asking whether the valuation level that applies on the day a retirement begins needs to be taken into consideration in calculations of the safe withdrawal rate (the inflation-adjusted percentage of his portfolio value that a retiree may use each year to cover living expenses with virtual certainty that his retirement plan will survive 30 years, presuming that stocks perform in the future at least somewhat as they always have in the past). Extensive research was done on this question in the following years in both the Retire Early and Indexing communities and every analysis showed that a valuation adjustment is indeed required. Background on the safe withdrawal rate matter is available at the Google Knol that I wrote on this topic.

I have seen two reactions to my advocacy of  New School (valuation-adjusted) safe withdrawal rate research at every community in which I have posted on this topic. Many community members respond with excitement to learning for the first time how retirement planning (and, by extension, stock investing in general) really works. Thousands of community members have expressed a desire that honest posting on safe withdrawal rates and other important investing topics be permitted at our boards (an article setting forth of the comments of 101 community members expressing this desire is here).

However, there has also always been intense opposition to the idea put forward by individuals who have written books or prepared studies or calculators rooted in the Buy-and-Hold Model of understanding how stock investing works (Buy-and-Hold is rooted in the research of University of Chicago Economist Eugene Fama and posits that investors do not need to change their stock allocations in response to valuation swings). Discussion of the implications of the research of Yale Economics Professor Robert Shiller, who found that valuations affect long-term returns and thereby discredited Fama’s Efficient Market Hypothesis, has been banned not only at the Bogleheads forum but at every large investing board on the internet as well as at numerous influential personal finance blogs. The result of the Social Taboo that has developed since The Stock-Selling Industry elected to spend hundreds of millions of dollars promoting the now (but not then) discredited approach is the investing crisis we are living through today (for more on how the promotion of Buy-and-Hold caused the economic crisis, please check out this article).

I had a long reputation for posting honestly in support of the Shiller model (Valuation-Informed Indexing) even in the face of brutally abusive posting by those seeking to “defend” the Buy-and-Hold Model at the time I put my first post to the Vanguard Diehards forum (the community that meets now at the Bogleheads forum met at the Vanguard Diehards forum before moving to the new site to avoid my postings). My first post generated a hostile response and the site administrators failed to take action to rein in the hate and anger and contempt that came from Buy-and-Holders as discussions over whether valuations matter in stock investing came to dominate the forum over the next several years (I am not able to recall a single time in which a Valuation-Informed Indexer posted abusively).

Matters came to a head in February 2007. Vanguard Founder John Bogle planned to speak at the indexing community’s annual conference. I announced plans to attend. Many expressed excitement that I would be able to put to Bogle the questions that had caused such controversy among indexers for so many years. At this point, the Lindauerheads (Mel Lindauer, the co-author of the book “The Bogleheads Guide to Investing” was the leader of the Goon posters seeking to intimidate those who dared to post their honest view that valuations matter in stock investing) formed a new site where they could be free of the relatively even-handed site administration policies of Morningstar.com. Thus was the Bogleheads forum born. Posters who oppose honest posting have remarked on numerous occasions in the time since how lucky the board community was that their desire to escape my posting freed them from the reach of responsible site administrators. Those advocating Buy-and-Hold at the Bogleheads forum no longer have to deal with those annoying questions about the 140 years of historical stock-return data showing that Shiller is right and Fama is wrong!

Is what Frakt says so? Am I a threat to the Bogleheads community?

By no means. A community that closes itself to questioning is a community in the process of experiencing a slow and painful death. There has never in the history of the indexing community been an issue that has generated even a small fraction of the genuine interest that we saw generated by our explorations of the effect of valuations on long-term returns during the years when such explorations were tolerated. Community members have now suffered huge losses because of the ban and many feel even stronger doubts about Buy-and-Hold today than they felt in the days when questioning of the strategy was permitted. Even Taylor Larimore, another co-author of  “The Bogleheads Guide to Investing,” at one point shortly after the crash acknowledged that he had abandoned Buy-and-Hold in favor of a mysterious “Plan B” because of concerns that his retirement would be in jeopardy if he stuck with the strategy he had advocated for many years at the board (Larimore today has at least for a time returned to generally favoring Buy-and-Hold strategies). Allowing honest posting by all community members would save the community, not do harm to it. It is the ban that is killing the indexing community.

That said, I do represent a threat of a different kind. I represent a threat to Buy-and-Hold. Another way of saying it is that I represent a threat to Get Rich Quick. A strategy that tells investors that they do not need to change their stock allocations even at times of insane overvaluation is a Get Rich Quick scheme no matter how it is promoted in the marketing materials. Where do the Buy-and-Holders think that the money used to send stock prices so high in the late 1990s came from? Was it printed up by Milton Bradley? The money was being borrowed from future investors (Today’s investors! Us!). The unwillingness of the Buy-and-Holders to acknowledge the need to pay back the $12 trillion debt incurred during the Buy-and-Hold years is typical of Get Rick Quick thinking.

I am no threat to indexing or to any indexing community. I aim to become the greatest threat to Buy-and-Hold and to all other Get Rich Quick investing schemes that I can possibly be. Why? Because I don’t believe in Get Rich Quick. Because I believe in long-term investing, data-based investing, intelligent and honest and realistic investing,  investing rooted in the academic research. Why do I believe in these things? Because of the persuasive arguments advanced in support of these preferences put forward by people like John Bogle, Eugene Fama, Burton Malkiel, William Bernstein, and many, many other Buy-and-Holders.

John Bogle does not object to discussions of Valuation-Informed Indexing. He has said publicly that he believes that the concept can work. To be sure, Bogle has shamed himself by failing to stand up to the Lindaurheads in defense of the community that meets at a board bearing his name (and, yes, I have made a personal plea to him to do so). But Bogle himself is not a Lindauerhead, at least not according to his public statements. It is of course absurd that discussion of an investing strategy that Bogle himself says can work is prohibited in a community bearing his name. I think it is fair to say that Bogle’s name is being dragged through the mud each day that the ban remains in place. It casts doubt on all his good work for those who claim to post in his name to make a daily implicit statement that Bogle is not up to the task if defending his investing advice in civil and reasoned discussion.

He’s not up to it, of course! The Lindauerheads are right to be alarmed at the prospect of Rob Bennett asking John Bogle questions re his longstanding investment advice in a public forum. But that should not be such a big deal. The mistake that Bogle and Malkiel and Fama and all the others made is not the first mistake that has ever been made in the history of humankind. There are procedures that we all learn about in kindergarden that we know to follow when we make mistakes that harm so many of our friends in such serious ways. We acknowledge the mistakes! We apologize for the human misery caused by the mistakes! We vow to do better! We move on with our lives!

And do you know what happens when we follow those procedures? The people harmed by the mistakes forgive us. And in time they come to recall that it is not only our mistakes that define us. The humans who make the biggest mistakes are often the same humans who bring about the greatest advances in human knowledge. Why? Because they stick their necks out. Because they take chances in going where none have gone before them. Because they are pioneers.

Bogle is a pioneer. Fama is a pioneer. Malkiel is a pioneer. The thousands of others who have advocated Buy-and-Hold are pioneers. How does the indexing community insure that these pioneers ultimately obtain the respect and gratitude and affection they merited through their hard and well-intentioned work despite the huge losses they have caused through their inadvertent advocacy of the purest and most dangerous Get Rich Quick scheme in history? We insure it by turning the focus away from the ugliness and deception and intimidation and word games we have seen during the Campaign of Terror against our board communities and by placing it instead on a constructive and healing and life-affirming transition from the failed Buy-and-Hold Model to the investing model of our future, Valuation-Informed Indexing.

Valuation-Informed Indexing could not exist but for the contributions of Bogle and many other Buy-and-Holders. But the longer the ban on honest posting on safe withdrawal rates and other critically important investment-related topics remains in place at our boards, the more difficult it becomes to make the case for Bogle and the other Buy-and-Holders to the millions of middle-class investors who have been done such harm by the failure of The Stock-Selling Industry to back down on its dogmatism for three decades after the academic research showed that there is precisely zero chance that Buy-and-Hold could ever work for the long-term investor.

No one posting honestly on what the academic research of the past 30 years says about the dangers of Buy-and-Hold represents any sort of threat to the indexing community. It is the ban on honest posting that represents a threat to us. The ban on honest posting makes us look absolutely awful in the eyes of the millions whose financial futures have been destroyed by our too easy acceptance of Get Rich Quick thinking during a time when it seemed to be paying off (Get Rick Quick of course always performs like gangbusters during out-of-control bulls).

I pray that I will over time come to represent a huge threat to the continued promotion of Buy-and-Hold. I represent zero threat to the promotion of indexing or to the advocacy of any of the many powerful insights through which Bogle and the other Buy-and-Holders have been enriching all of our lives for many, many years. I am the true Boglehead. Lindauer represents only the man’s dark side (at least this is so at the times when Lindauer is playing the role of Enforcer of the Buy-and-Hold dogmas). The future of indexing lies in the promotion of Valuation-Informed Indexing, not Buy-and-Hold.

This is my sincere take re these important matters, in any event.

Hang in, there True Bogleheads! We see signs of a growing interest among middle-class investors in learning the realities of stock investing as revealed in the academic research of the past 30 years on an almost daily basis. As famed portfolio strategist Sam Cooke once put it: “It’s been a long time coming, but Lord I know that someday soon now A Change Is Gonna Come.”

“The Mother of Those Two Boys Did Not View Those Death Threats as ‘Alleged'”

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Here are some words that I put last week to the comments section of the blog entry titled “Rob Can Be Exhausting and Perhaps Does Not Recognize Well-Supported Contrary Views As Well As I Wish He Would”:

“Alleged,” Azanon? Excuse me?

There are Post Archives. If you have any doubts, you can check.

My understanding is that you posted at the Early Retirement Forum. If that is so, then you were there in person to see for yourself.

Please do not insult my readers with use of the word “alleged.”

If you are afraid of what the internet sewer rats will do to you if you post honestly on the process questions, I understand. I am thrilled to have your contributions on the substance side, which help us all sort out these important matters.

But please do not insult my readers with use of the word “alleged” when describing the tactics employed by the internet sewer rats who through their dishonesty and abusiveness have brought on the second worst economic crisis in U.S. history. There are thousands of smart and good people in our communities. It is an insult to them to suggest that they would be tolerating the most vicious smear campaign in the history of the internet (by a factor of 50) if there were anything “alleged” about the threats of physical violence put forward by Lindauer and Greaney and those posting in “defense” of them.

The threat that Greaney put forward to have my wife and two boys killed in the event that I continued to post honestly on the safe withdrawal rate matter was not “alleged,” Azanon. The mother of those two boys did not view those threats as “alleged.” Neither did the office of the congressman (Rep. Frank Wolf) to which I reported them. Neither did the Purcellville police department. Neither did the special internet crimes office to which I was referred by the police department and which has opened a file on this matter.

I intend to bring legal actions against the internet sewer rats and against the site owners and blog owners who have tolerated them despite their clear promises to protect community members posting honestly from these sorts of individuals. There will be nothing “alleged” about the financial damages that these people will be paying in days to come. Many, many people have been hurt in very serious ways by the actions of the internet sewer rats (including the internet sewer rats themselves, to be sure). There is nothing even a tiny bit “alleged” about any of this.

Posts put to internet boards and blogs are recorded in Post Archives, Azanon. Please do not insult the intelligence of my readers by pretending that you do not know this. Any time you experience any doubts about any of this, you have Post Archives that you can check. Here is a link to the discussion board run by John Greaney, the author of one of the discredited SWR studies:

http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?board=HOCO

That material is not “alleged.” It appears on the computer screen of any person who clicks on the link above. I know. I have checked.

Rob

“Rob Can Be Exhausting & Perhaps Does Not Recognize Well-Supported Contrary Views As Well As I Wish He Would”

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Set forth below are some words that Arty put to the comments section of a blog entry from last week:

Hi, Dripguy,

To the Rob quote you mentioned, above, I do agree, as would Shiller and many, that extreme far-right valuations represent “dangerous road conditions”. And I’d add that this might apply not just to “buy and holders”.

Every year I have some intermittent discussions with Rob, usually around holidays or when I am of from work. I do understand he is quite enthusiastic on his views. Indeed, he can be exhausting, and perhaps does not recognize well-supported contrary views as well as I wish he would. Rob knows that and I know this going-in.

I understand the frustration some might feel with Rob, and I believe he can do much better with his dialogue approach. But this is sometimes also said of me, and it is not upon me to teach anyone else better discourse methods. What would he say if I suggested thus? I assume others have already done this. Maybe you have.

Rob and I do agree on some basics, and that “valuations matter” is likely the main of them (of course, many experts do not dispute that.) In fact, I first discovered Shiller and PE/10 long ago because of Rob, which is why I have returned here occasionally to say “hi” and chat. I do read the various investing boards when I can, and have found some discussion of PE/10 there too. Rob and I also agree that emotions can matter greatly in investing, as looking at any discussion board, and even its leaders, will pointedly demonstrate.

Rob and I do NOT agree on some central points. I do believe there is a buy and hold approach that accomplishes much of what he (or Shiller) might intend with P/E 10, though I feel it lies in what we might call a more conservative approach to investing that recognizes the “fat tail” events of the bearish kind—the wealth killers. PE/10 seeks to avoid that with long range timing, of course. I am hopeful Rob can recognize the validity of this approach to buy and hold and I am not sure the approaches are mutually exclusive (especially at extreme levels). But I think he’ll likely pass. It’s OK.

While I think Shiller’s PE/10 concept and Rob’s tools that use them are fascinating, I am not sure if they are very useful beyond the extremes of valuations—the broad middle. I have tried to examine this, and have not been successful in finding acceptable solutions for their general use, either by me or elsewhere. Rob seems to feel committed to his views and solutions. Perhaps Shiller does too. Though, I have indicated that even Shiller is still waiting for a better time to buy than March 2009 (as per his own words). He waits still. And if I used the Shiller tool, I would never be wholly out of stocks.

I suppose had PE/10 a definite utility, its use would long since have been employed by experts whose livelihoods depend on outperformance. PE/10 would have “changed everything” in that area. It hasn’t. Though, there again, we might agree that institutional managers have other ways to make money from us and may not seem popular if they were lagging the market as a whole—something that a Shiller model must sometimes do.

My question to you is given your position about Rob, why do you return here ever and read his articles and posts? You clearly have some history with him.

Happy New Year!

Free Money Finance Blog Links to WSJ Article on Market Timing Myth

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I recently wrote a column on the Wall Street Journal article acknowledging that the Buy-and-Hold claim that long-term investors need not engage in market timing is a marketing gimmick aimed at making the “experts” rich at the expense of the millions of middle-class investors sure to be wiped out by following such a “strategy.” I wrote a second column pointing out that few Buy-and-Holders have acknowledged the article or commented on it or debated it.

The blogger who writes the Free Money Finance blog has now done so!

This is a big deal. It is the Get Rich Quick aspects of the Buy-and-Hold strategy that were the primary cause of today’s economic crisis. The problem we face today is that all of us who either advocated Buy-and-Hold or followed Buy-and-Hold strategies at some time — and that’s most of us! — feel shame over what we have done and are highly reluctant to come clean. But until we come clean there is no way for us to get to work rebuilding the economic and political systems we have destroyed!

The first step on the way back is opening up the possibility of honest discussions of the flaws in the Buy-and-Hold Model on the internet. We all want the same things. We all wants our economic and political systems to survive. We all want to be able to obtain good returns without taking on insane amounts of risk. We all want to feel that we are good and honest and helpful and kind and reasonably intelligent and reasonable people. Once we become able to have a conversation about how we came to find ourselves on the wrong track, it will not be long before we all will be celebrating the day this economic crisis began the struggle that over time is leading us to form doubts over the insane dogmatism that we have come to evidence in discussions of the merits and dangers of Buy-and-Hold Investing.

FMF is a longtime advocate of Buy-and-Hold. Other Buy-and-Holders will be following his lead (Let us pray!). He has advanced the ball in a major way by sending a signal to other Buy-and-Holders that permitting honest posting at their sites will not cause the world to explode. This is how we begin the process of bringing about a healing process.

I am grateful to FMF for what he has done here and I believe that you should be too. I hope you will consider letting him know how you feel in an e-mail or in a post at his blog (if you are the especially brave sort!). Heaven knows the humans move slowly when they have messed up in a big way. But they do move. We are not doomed. There will be better days ahead, perhaps sooner than some now expect to see them arrive.

Set forth below are the words that I posted in the comments section of FMF’s blog:

I am very grateful to you for posting this article, FMF. Yes, this is the method that I follow and advocate. It is called Valuation-Informed Indexing. At my site there are four unique calculators (which took years of effort and many thousands of dollars to develop) and 200 podcasts and 100 articles and scores of links to Guest Blog Entries describing the various aspects of how it works.

It greatly increases returns while also greatly reducing risk. It permits middle-class investors to retire five years sooner on average. If we could teach people about it, we would be unlikely to ever again see the sort of economic crisis we are living through today. I would need to write an entire book to describe all the benefits (I’m in the process of doing so — it is called Investing for Humans: How to Get What Works on Paper to Work in Real Life).

I know that you are widely respected in the personal finance blogosphere (and entirely properly so, in my assessment). I hope that some of the people who have been hostile to an examination of the pros and cons of VII and Buy-and-Hold will perhaps see your article and rethink whether as a community we have proceeded with our consideration of these topics in the best possible way. I can assure you that from my end I will do everything I can to make the discussions that I believe are going to begin soon a success for EVERY SINGLE PERSON involved in them.

Our discovery that long-term timing always works is a win/win/win/win/win. Do you know who gets the most credit for development of the VII strategy? A fellow named John Bogle. And of course the thousands of smart and good people who followed in his footsteps also deserve huge amounts of credit for their many positive and helpful and constructive contributions. Valuation-Informed Indexing would not exist if it were not for the many powerful insights developed by the Buy-and-Holders that form its foundation.

We all want the same thing. We are all in this together. Buy-and-Hold was a huge advance over what we had before it came along. VII is a huge advance over Buy-and-Hold. The Buy-and-Holders need to understand that no one ever expected them to get the data-based approach 100 percent right on the first try. We are learning new things all the time. We need to incorporate those new things into our investing strategies. The very first step is acknowledging that we do not already know it all and that it is silly even to imagine that we do.

Please let me know if there is ever anything that I can do to help things to get kicked off in the right way or to proceed in the right way. I admire and respect and like the Buy-and-Holders and I have long hated having been placed in circumstances in which I have come across to many as being critical of my friends who follow (and believe in) Buy-and-Hold strategies. I want to be working WITH my friends for our mutual benefit and for the benefit of all our readers.

Thanks again for showing the courage and love for your readers that I know it took for you to advance this post. There’s wonderful, wonderful stuff on the other side of this black mountain. There’s going to come a day when we all are going to look back at the past eight years and laugh that it took us so long to understand the importance of Learning Together all that we can about how stock investing works in the real world.

Rob

Lawsuits, Etc.

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Set forth below is the text of a post that I put yesterday to the Goon Central board:

NFS said something yesterday that has been bothering me. He referred to the statements that I have made than I intend to bring lawsuits against the internet predators who have posted in “defense” of Lindauer and Greaney and the web sites that have banned honestzzz posting as a “threat.” I can see why someone would take it that way. But the word “threat” does not accurately describe the spirit in which I have put forward those statements. So i thought that perhaps I should try to explain a bit.

My intent in bringing the lawsuits is to recover the financial losses I have sustained as a result of the many acts of defamation and the efforts to destroy my business and the promises to protect me from this sort of thing that were made by site owners and not honored. Period. End of sentence. End of paragraph. End of chapter. End of story.

It’s a money thing. People have foolishly incurred liabilities and it is my intent to recover damages from these people and that’s all there is to it.

The word “threat” suggests something different to my ears. If you want to use the word, I cannot stop you. But I just want it on the record that I see my references to lawsuits as a statement of intent rather than as a threat. I see a difference between those two.

Why bring it up at all then? Why not just never mention the lawsuits until they are actually filed?

My problem with that approach is that I would feel that I was operating under false pretenses with people if I played it that way. Say that the Ban on Honestzzz Posting is lifted and that I am posting at various boards and goofing around with people and all this sort of thing and then one day out of the blue some people are served legal papers. Would that not seem sort of strange? This entire affair is as strange as strange can be but I feel that to play it that way just makes it even more strange. So I don’t see that as the right way to go.

I would prefer that people know where I hope to take this. I do want to see the Ban on Honestzzz Posting lifted. I do want to be goofing around with people and all this sort of thing. I do want to bring lawsuits and recover the financial damages that I have sustained. I do want to do all this in a way that is above-board and non-sneaky. And, to the extent possible, I would like to remain friends with as many of the affected parties as possible. I play it the way that I do for a reason.

Drip Guy is going to jump in and start screaming that he cannot be friends with someone who posted honestly on safe withdrawal rates, blah, blah,blah, and I cannot stop him from having a heart attack if he is set on it. All that I can say is that the investing materials at my site are available to anyone who wishes to make use of them, Goon and Normal alike. I care about what happens to Drip Guy and I wish him well, and I wish all the other Goons well. If I were to stop feeling that way, I would feel that I had let myself become a bit of a Goon myself and I just do not want to go there.

So my aim in making mention of the lawsuits is just not to mislead people into thinking that because I post here and elsewhere with warm and friendly words to the people attacking me does not mean that I do not intend to do what I can to recover financial damages from them as a result of actions of theirs that went way over the line.

I don’t say these things to upset people. I say them because they are so and because I would feel that I was engaging in a small dishonesty if I were to continue to post knowing that I was planning lawsuits but never letting anyone know about it.

Drip Guy — You may now proceed with your heart attack!

Rob

Financial Samurai: “How Come I Continue to Not Understand What the Debate Is About?”

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Yesterday’s blog entry set forth the text of a comment put to this blog by the author of the Financial Samurai blog. Set forth below is a follow-up comment that Sam put to a different blog entry thread, the thread relating to the blog entry called “We Don’t Want to Know What Works, We Want to Hear What Makes Us Feel Good.” Below that is the text of my response.

Sam:

How come I continue to not understand what the debate is about? Seems like nobody else can either, which is why there are no comments?

Rob:

Thanks again for helping out, Sam. You are a smart guy and you ask questions that get to the heart of things.

Say that you lived in pre-Civil Way days and say that you opposed slavery. Say that you noticed what happened to other people who spoke out against slavery. They were beat up. They were turned down for jobs for which they were well-qualified. Their families were shunned. All this sort of thing. Would you conclude that it was the better thing to speak out against slavery or to keep your mouth shut?

To be able to function, societies need to develop Social Taboos. We think of our society as an open society and we indeed are more open than most. But no society is totally open. A society that was totally open would collapse. There are things that cannot be said in our society and in all societies.

For a long time now, one of the things that could not be said in our society is that Buy-and-Hold Investing does not work. The question is of huge importance. Millions of people have their retirement money invested pursuant to Buy-and-Hold principles. This is why a Social Taboo has developed that says — You Cannot Go There, This Is a Third Rail. This taboo was needed (or at least we as a society came to believe that it was needed) for social stability.

The Social Taboo has outlived its usefulness. Today, it is the unwillingness of many to question Buy-and-Hold that is causing social instability. The promotion of Buy-and-Hold is the primary cause of the economic crisis. If people could learn about Valuation-Informed Indexing, we could get out of the economic crisis and we could enter The Golden Age of Middle-Class Investing. It’s a win/win/win, with no possible downside.

So why don’t we make the shift?

There have been thousands of books written promoting Buy-and-Hold. Academics have produced thousands of studies. There are hundreds of blogs that promote Buy-and-Hold. Reputations are tied up in retaining a public belief in Buy-and-Hold. And on and on.

We maintain the Social Taboo because pointing out the dangers of Buy-and-Hold is going to cause a huge social upheaval. Just as doing away with slavery caused a huge social upheaval. The people who failed to speak out against slavery were not bad people any more than the people who fail to speak out against Buy-and-Hold are bad people. They had lives to live. We cannot always be taking on every battle. If we did that, we would never get our jobs done or our families fed.

That said, there comes a time when one of these things must be taken on. Please understand that I did not volunteer for this assignment. If it had been up to me, I would have continued writing solely about saving and I would still today be the most popular poster at the Motley Fool site. That’s not the role that the Fates had carved out for me. I was to be the one who would take on the Buy-and-Hold Monster, whether I liked the idea or not. I feel into all this with zero desire on my part to walk this road.

It had to be someone, eh? Someone has to do it, Sam, We need to make this transition. Buy-and-Hold was a mistake. It can be reformed into something wonderful and all the people who promoted Buy-and-Hold can have their reputations saved by us all pointing out that we wouldn’t have that something something wonderful if it had not been for the amazing work done by the Buy-and-Holders, who laid the foundation for the Second Draft approach, the approach that actually works. But we MUST make this transition if our economic and political systems are to survive. For us to continue to promote Buy-and-Hold today is for us to commit national suicide, Sam. I can work through this step by step and show you why this is so with numbers.

I am very much aware of the need not to tear our social fabric apart making this transition. This is why you always hear me singing the praises of Bogle and Fama and Malkiel and all the other pioneers. We need to applaud the good work they have done while also moving onto a better path for the future.

I need some help in pulling this off successfully! That’s what it all comes down to,. I know what needs to be done. There is not one person who loses out from this. It is just all winners, all big winners. But one person cannot make this happen. It is a community project. I need at least a small number of responsible and loving people to step forward and then all the rest will just sort of go. Once people see that it really is going to happen, everyone will be pitching in and we will be picking up steam. The next thing you know we will be meeting with Bogle and he will be making the speech he needs to make and we all (including Bogle, to be sure!) will be heroes!

We are trying to move humanity forward, Sam. The Buy-and-Holders were trying to do a wonderful thing. The root ideas were gold. They made a mistake. This happens from time to time with the humans. Perhaps you’ve noticed. If we fix that mistake, we all get to learn how to invest far more effectively than we ever have before. We all get higher returns at less risk and we all achieve financial freedom years sooner. We all have wildly successful blogs.

The rub is the three words “I” and “Was” and “Wrong.” There is no way that a group of people can make a mistake that causes this much human misery and then just cover it up. The Three Magic Words must be said. It is the magic that comes from the voicing of those three words that open the door to all the good stuff. So long as there are millions of people trying to pretend that Buy-and-Hold can work, they are not open to be learning about what really does work. Buy-and-Hold is today sucking all the oxygen out of the room. We need to let it die.

That’s why you don’t understand, Sam. You can’t permit yourself to understand until you are ready to act. Once you (and a small number of others) act, it’s one good thing after good thing after good thing and never a negative thing. We are lucky/unlucky enough to be living at a key turning point in U.S. history. We can take things up or we can take things down by the actions we choose re whether to permit honest posting on the Big Fail of Buy-and-Hold or not.

I am voting for taking things up. I could use your help, Sam.

Rob