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

“But I do not believe that the market is efficient.”

And it doesn’t matter whether it is efficient or not.

A buy and hold investor will receive the market return (minus very low costs) over any given period.

Investors as a whole will receive the market return (minus higher costs) over any given period.

The buy and hold investor will get a higher investment return than investors as a whole.

If buy and hold doesn’t work then investing doesn’t work.

I was rereading some old posts yesterday and I thought that I should offer a more in-depth response to this one.

The question of whether the market is efficient or not is the entire dispute. The difference between Buy-and-Hold and Valuation-Informed Indexing is that Buy-and-Holders disdain market timing and Valuation-Informed Indexers believe that it is the key to successful long-term stock investing. Market timing is price discipline. We all believe that price discipline is absolutely essential in every other market in which we participate. So how did there ever come to be a widespread belief that the stock market is the sole exception to the otherwise universal rule? The answer is — a mistaken belief in the Efficient Market Theory messed with our minds. If there had never been an Efficient Market Theory, there never would have been a Buy-and-Hold and we all would be Valuation-Informed Indexers today (and of course we all would be living far richer and happier lives).

The point that you make in your comment is that someone who follows a Buy-and-Hold strategy ends up getting the market return and the market return is likely going to be something in the neighborhood of 6.5 percent real, which is very good. So what’s the beef?

The beef is that, when large numbers of investors come to follow Buy-and-Hold (price indifferent) strategies, the stock market becomes an insanely dangerous investment choice. TIPS were paying 4 percent real in 2000. Stocks were offering a likely 10-year return of a negative 1 percent real. It is insane that there could ever be a time when a risk-free asset class could offer a return of 5 percentage points better than stocks. But that’s what Buy-and-Hold/Price Indifference did to us as a people. Buy-and-Hold/Price Indifference is poison.

Now —

Will the people who invested in stocks in 2000 eventually earn a return of 6.5 percent real on their investment? I believe that they will. But it might take them 30 years to get there. There is a time value to money. If stocks had been selling at reasonable prices in 2000 (as they would have been had it not been for the widespread promotion of the Buy-and-Hold “strategy”), people who invested in stocks in 2000 could have realistically expected to see a 6.5 percent return within 10 years. Because of Buy-and-Hold, they could not realistically expect to see that return until 30 years had passed. That’s a big difference. Giving up 20 years of compounding returns is a huge setback. That’s the price that we pay as a society when we fail to speak up about the dangers of this long-discredited “strategy.”

The stock market is great. I have nothing against the stock market at all. A 6.5 percent real return is awesome. What I don’t like is what the widespread promotion of a pure Get Rich Quick approach to stock investing does to the lives of millions of middle-class people. Shiller predicted the 2008 economic crisis in a book published in March 2000. How did he know what was coming? He had seen the 126 percent increase in stock prices in the last four years of the 90s and he knew from his research that irrational exuberance always disappears into the mist in the long term, so he knew that we were going to see losses so big as to bring on an economic crisis. Tens of thousands of entrepreneurs saw their businesses go under in that Buy-and-Hold Crisis. Millions of middle-class people lost their jobs.

Is that a case of Buy-and-Hold “working”?

I say “no.”

When an investment strategy causes that sort of human misery, it is not “working,” in my assessment. I call that “failing.” I say that it is the investment strategy that helps us to avoid economic crises (Valuation-Informed Indexing) that works, not the one that inevitably brings them on.

The wonderful 6.5 percent return is not the product of Buy-and-Hold. That wonderful return is the product of our powerful economic system. Stock investors are simply tapping into that productivity.

Buy-and-Hold and Valuation-Informed Indexing are two alternative ways to tap into that productivity. Buy-and-Hold is the way that pushes risk up to the highest levels possible by urging price indifference. With Buy-and-Hold, you see stocks selling at three times fair value at market peaks and at one-half of fair value at market bottoms. So those who want to tap into that productivity have to endure seeing five-sixths of their accumulated wealth of a lifetime disappear at some point in their lives (in some cases just before retirement!). With Valuation-Informed Indexing, you still get the great returns but price volatility is dramatically reduced (because most investors are practicing price discipline, acting to keep stock prices at reasonable and sustainable levels at all times).

Call me madcap but I prefer the far less risky approach to stock investing, the approach that DOESN’T cause economic crises and all the human misery that goes with them.

Economic-Crises-Avoiding Rob

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

You should realize you have a sickness when you can’t even stop posting on a holiday. Get help.

I love honest posting. I love Valuation-Informed Indexing. I love stock investing. I love early financial freedom. I love this new communications medium. Holidays are about kicking your feet up and having fun. Why would I want to pull back on holidays? That would make no sense.

As you know, I am focused nowadays on writing my book. There’s a sentence in Chapter Thirteen where I say: “This is the most important book ever published in the field of personal finance.” I go on to explain that the purpose of the statement is not to brag, it is to tell a story that very, very, very much needs to be told.

The thought that the market is efficient was a mistake. It didn’t have to be such a big deal. We all make mistakes. The trouble is that the mistake has been so destructive to so many human lives that the Buy-and-Holders cannot bear to acknowledge the mistake. And so we are now all stuck in this bizarro world where any crazy idea about how stock investing works can be advanced but the one thing that is absolutely prohibited is honest posting re what the last 38 years of peer-reviewed research teaches us about this important subject. I continue to believe that deep in our hearts we are all united in wanting to find our way to the other side of The Big Black Mountain. We’re all in the same boat. We all need to know how stock investing works in the real world.

I offer no apologies for feeling strong enough in my desire to help millions of people protect their retirement savings to post here even on holidays. Holidays are about spreading love, about shining a light in the darkness. That’s Valuation-Informed Indexing. That’s the first true research-based investment strategy. That’s honest posting. That’s the real turtle soup and not the mock.

My sincere take, Anonymous.

Truly and Deeply Sick (and Proud of It!) Rob

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

Price matters

If I am buying a car today I will buy the model I want at the lowest available price available today.

I will not decide in the mid 90s that all cars are too expensive and wait through 2019 hoping that cars will one day be cheap enough.

The biggest thing that I was working against me in my efforts to persuade people of the merit of Valuation-Informed Indexing is that it can take so long to work. The point that you are making here is rooted in how most people think about these matters. Most people acknowledge that valuations matter. But they find it hard to accept that stock prices could remain at levels that greatly reduce the appeal of stocks for 23 years. That is an exceedingly counter-intuitive idea. I get it.

My view is that what matters is whether price changes are caused by economic realities or by investor emotion. If they are caused by investor emotion, as Shiller claims, that’s a big deal. If that’s so, people need to know that. I don’t have a problem if people say that they are going to maintain their high stock allocations even though there is evidence in the research that high prices are caused by investor emotion. That is for each investor to decide for himself or herself. But I very much think that that issue should be openly discussed at every site. I don’t say that everyone should agree. I say that every person contributing to a discussion should feel 100 percent free to say what he or she truly believes. There should be no intimidation tactics practiced.

You say that you don’t want to wait 23 years. But of course you did not know in 1996 that prices were going to remain high for another 23 years. You have to make your decision re what stock allocation to go with in 1996 at that time. I chose to lower my allocation because of my concern over the risk presented by the CAPE value that applied at that time. Do I have a right to make that choice? I say that I do. And I say that I have a right to tell my friends about that choice and about my reasons for making it. That’s the dispute. Does the fact that Shiller has published peer-reviewed research showing that valuations affect long-term returns give those who believe that valuations affect long-term returns a right to say so on internet discussion boards?

There were people planning to hand in resignations from high-paying jobs in 2000 at the Retire Early board. Greaney was telling them that a 4 percent withdrawal rate was “100 percent safe.” An analysis that considers Shiller’s Nobel-prize-winning research shows that there was only a 30 percent chance that a retirement beginning at that time and calling for a 4 percent withdrawal would work. I think those people needed to hear that. If they choose to take 4 percent anyway, that would have been their business. But they should have been able to hear both sides.

There is not one academically respected model for understanding how stock investing works, there are two. That’s the bottom line re all this. The Buy-and-Holders have a Nobel prize on their side and so do the Valuation-Informed Indexers. Believers in both models have a perfect right to post their honest thoughts on all investing questions.

That’s my strongly held belief, Evidence. I naturally wish you all good things.

One more point. If we permitted honest posting, prices would quickly adjust in the stock market just as they do in all other markets. So you wouldn’t have to wait 23 years. The only reason why it has taken 23 years so far for prices to adjust is that honest posting is not permitted. Prices adjust as the result of market participants acting in their self-interest. Stock investors who have never heard the case for Valuation-Informed Indexing are not able to act in their self-interest because they are not able to become informed of the realities. None of us could become informed of the realities prior to 1981, when Shiller published his”revolutionary” (his word) research. But now they can. Shiller’s work was a ,major advance. We should be grateful for it and we should all be working together to figure out all the details of what it means. Once we do that, you won’t have to wait 23 years for prices to adjust anymore.

Rob

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

What is my beef with market timing schemes like VII? It doesn’t have a successful outcomes track record like Buy, Hold and Rebalance.

That’s a reason for not following it yourself, Anonymous. It’s not a reason for blocking other people from hearing about it. That’s where you cross the line.

I have zero problem with people who favor Buy-and-Hold over Valuation-Informed Indexing. There are many millions of good and smart people in that camp. I was once a Buy-and-Holder myself.

But we have to permit discussion of these issues at every investing discussion board and blog on the internet. Buy-and-Hold was dominant in 1981, when Shiller published his research showing that the market is not efficient. For the new model for understanding how stock investing works to gain support, there has to be widespread discussion of the issues. Until we have that, we cannot say that most people genuinely prefer Buy-and-Hold. Most people have only heard one side of the story. That ain’t the American way.

My sincere take.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

For investors following your VII strategy, you are saying they need to write a book and sell it in order to finance their retirement? That’s part of the VII strategy?

Rob, if any person followed your plan, they would have experienced a failed retirement. It is simple math.

I am saying that every investor should practice market timing. The aim should be to keep your risk profile roughly constant over time. When valuations move up dramatically, you have to lower your stock allocation. When valuations move down dramatically, you have to increase your stock allocation. Wade Pfau and I co-authored peer-reviewed research showing that this approach greatly diminishes risk while also greatly increasing return. That’s been so for as far back as we have good records of stock prices.

I also say that any journalist who is placed in circumstances in which he happens to fall upon a story one-tenth as big and important as this one would be a fool not to pursue it for the remaining years of his life. Stock crashes cause huge amounts of human misery. If we can do away with stock crashes (and we can do that today by permitting widespread discussion and exploration of the far-reaching implications of Shiller’s Nobel-prize-winning research findings), we change the world in a very positive and exciting and life-affirming way. Please mark me down as being in favor of us doing that and as being humbled to have been able to have played the role that I have played in turning this amazing breakthrough in our understanding of how stock investing works into a reality.

I hate the bad stuff that we have seen. But the good stuff that is waiting over the horizon is so good that I don’t believe that hardly anyone is even going to remember the bad stuff once we make it together to the other side of The Big Black Wall of ignorance and indifference that is holding us back today.

We’ll see.

My best wishes.

Life-Affirming Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

As you admit, you are not a math guy. With investing, it is all about the numbers. I don’t think, however, it is just your poor math skills that lead to all of your false conclusions. Your retirement plan failed, your market timing strategy failed and the community at large humiliated you and kicked you out. As such, you have to push a false narrative in order to try and save face. As you can see, it’s not working.

I don’t consider math stuff to be my strong suit. So we are okay re that one.

I half agree with you that investing is “all about the numbers” and I half disagree. The Buy-and-Holders do not include adjustments for valuations in any of their calculations. Shiller’s work shows that valuation adjustments are required. So the two schools of thought produce very different numbers. If Shiller’s Nobel-prize-winning research is legitimate research, then every calculation that the Buy-and-Holders have ever done is in error. If you leave out the most important factor, your calculations are always wrong, no?

So who are the real numbers guys? The ones who always ignore the most important factor and get every calculation wrong? Or the ones who say “we better include valuations because we know that valuations always have a big effect”? I do not consider myself strong on numbers but I consider myself strong on emotions and it is investor emotions that cause mispricing (overvaluation and undervaluation). So I think it would be fair to say that I do a better job with the numbers than the Buy-and-Holders. Not because I am great with numbers. Because I am good enough with emotions to know that numbers relating to emotions need to be included and the Buy-and-Holders — who generally are not so strong dealing with emotions — do not.

I definitely think that it is better to get the numbers right than to get them wrong. I am 100 percent confident re that one.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

17 years is long term (as you have even stated yourself). For your system to work, you need to have not spent down a considerable portion of your nest egg in order to take advantage of a market downturn. Time is your enemy when you market time. Of course, you are still doing the same as before by changing the topic and spouting lies in order to divert from the question that has been asked so many times.

Once again, answer the question:

Your timing strategy didn’t work and you did not get the returns you said you would. Why should anyone follow your advice or the VII strategy when you failed?

The reason why people should follow it is because it has always worked. There has never been one exception in the historical record.

In the event that stocks continue to perform in the future at least somewhat as they always have in the past, I will get the returns that I expected. Now, I obviously cannot get those returns on amounts that I sold off. But that’s a separate matter. I only sold off because I wanted to take advantage of huge opportunities that were presented to me. If I retained the assets, I would get those returns.

It will have taken longer to get them than I anticipated. You’ve got me there. 17 years is indeed a long time. A very long time. Stock prices have remained at very high levels for longer in this bull/bear cycle than they have in any earlier one. That’s real. That’s a fact.

But are you willing to act as if this strange situation will continue forever? I am not willing to do that. If stock prices are determined in the way that Shiller’s research shows they are, those high prices will end in not too much more time.

You say that” “Time is your enemy when you market time.” That’s probably true to a small degree. But I do not think that it is true nearly to the extent that you think it is true. Look at all the times in history when market timing has eventually worked (that’s every case currently available for our review). There were lots of cases in which Buy-and-Hold had gone ahead for a significant length of time. But in every case market timing won the day in the end. Do you think that’s coincidence? I sure don’t. I think market timing always prevails because it is rooted in a realistic understanding of what causes stock price changes while Buy-and-Hold is rooted in a mistaken understanding.

The one point that you are making that is somewhat valid is that prices have remained high for a longer period of time this time than ever before. That is so. If people want to go with Buy-and-Hold because of that, they should do that. But that is sure not what I am going to do. I don’t see any reason to believe that all of the laws of stock investing have suddenly been turned on their head. I believe that the fundamental rules will continue to apply as time goes by. We will just have to wait and see to know for sure. But I feel a lot better going with what has always worked than abandoning it for something very different for no good reason other than a hope.

I hope your strategies do for you what you are hoping they will do for you, Sammy. I obviously don’t expect to see that happen. But I am a fallible human and it could be that I will be proven wrong. If that turns out to be the case, I would like to think that at least my friend Sammy will see good results as a consequence. So there is no way that this can turn out all bad.

Rob

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

I would call you May 2002post as “famous”. Instead, it was one of several significant catalysts in your humiliation. You really didn’t know what you were talking about and that post just kind of highlighted it. As you have admitted, you are not a numbers guy. It is hard to know much about investing if you are not a numbers person as it comes down to math/statistics.

I am not a numbers guy. I am an emotions guy.

Stock investing does NOT just come down to numbers. Emotions play a big part in it. It was Shiller’s revolutionary insight to see that.

Shiller showed us how to translate the emotional piece of the stock investing puzzle into numbers with his CAPE metric.

Include the numbers relating to investor emotion in your calculations and you get very, very different results. The safe withdrawal rate is always 4 percent if you ignore the numbers showing the emotional effect. Include all the numbers and the safe withdrawal rate is a number somewhere between 1.6 percent and 9.0 percent, depending on the emotional component to the stock price at the time the retirement begins.

Every post that followed the post of May 13, 2002, showed that I very much knew what I was talking about. Wade Pfau would not have concluded that “Yes, Virginia, Valuation-Informed Indexing works!” had he not concluded from his 16 months of research into the issue that I very much knew what I was talking about. And you would never have risked going to prison for extortion if you were able to think of any other way of stopping these ideas from reaching the millions of investors who very much want and need to hear about them.

I think we are a good people. I think the ideas will get out. Not as soon as I wanted, for sure. Not anything close to as soon as I wanted. But I think that the ideas will get out in the days following the next price crash, when the investor psychology will change.

I wish you the best of luck with it, Anonymous. That’s all that I am able to do for you. The ideas need to get out. In an ideal world, the national debate on Shiller’s revolutionary research findings would have been launched in 1981. But we will all end up a heck of a lot better off launching it in the days following the next price crash than not launching it at all. So that’s what I am aiming for at this point in the proceedings.

Emotions Guy Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

You have written this same stuff thousands of times. Why don’t you try writing something new that people can learn from and actually see value. Use your own life experiences. Tell people about how your retirement plan failed and what you learned from it. Tell them about how you have to go back to work and how you are looking for a job. Give tips to those that are over 60 and are like you in having to return to the job market. Tell them about how market timing failed for you. Tell them how they should not listen to predictions of the stock market as they are mostly wrong. Try being real instead of living in an imaginary world. We have enough people faking out there.

There’s only one issue in the stock investing realm that I have ever written about, Sammy. I don’t believe that I have anything special to offer re any other issue and so I just keep my mouth shut on all of the other issues. But I believe that the one issue that I write about is huge. The one issue that I write about is the far-reaching implications of Robert Shiller’s Nobel-Prize-winning research showing that valuations affect long-term returns.

If that’s so, it changes everything that we once believed about how stock investing works. We all want the same things. We all want to become effective investors. So you would think that there wouldn’t be one dissenting voice to my proposal that we permit open and frank discussion of the how-to implications of Shiller’s “revolutionary” (Shiller’s word) research findings at every discussion board and blog on the internet. I am here to tell you that there is a whole big bunch more than one dissenting voice to that one. About 10 percent of the population loves my stuff. But another 10 percent hates it so much that they cannot stand it. The 80 percent in the middle is okay with the idea of permitting me to talk. But they don’t feel strongly enough about it to object too much when the 10 percent of super intense Buy-and-Holders demands that I be banned. So I almost always end up being banned sooner or later.

Why the super intense reactions? Paradoxically, it is because Shiller’s research is so darn wonderful. If Shiller is right, it was the relentless promotion of Buy-and-Hold strategies that caused the 2008 economic crisis. If Shiller is right, most of the gains that we experienced in the late 1990s were not real and lasting but just the product of irrational exuberance. When those trillions of dollars disappeared, we were going to see consumer spending power diminish by trillions of dollars. Obviously, that caused an economic crisis because the loss in consumer spending power puts hundreds of thousands of companies out of business and left millions of workers jobless. Bad stuff. That’s the power of a bull market to hurt us all. That’s the power of Buy-and-Hold (which caused the bull market by assuring investors that there is no need to practice market timing when buying stocks) to hurt us all.

We should all be jumping up and down in excitement that Shiller provided us the missing piece of the stock investing puzzle. But the reality is that it is hard to make a transition like this. The vast majority of people who are viewed as experts in this field became experts pushing Buy-and-Hold. They don’t want people to explore the research showing that they got it wrong. And the vast majority of investors bought into the Buy-and-Hold idea and have felt great gratification seeing the strategy appear to work. They don’t like the idea of admitting a mistake either. So we are caught in an in-between place. Those who pay attention to the peer-reviewed research know what works. But very few are willing to “cross” the Buy-and-Holders by speaking openly and frankly about what the last four decades of peer-reviewed research teaches us all.

I think this is the biggest public policy issue facing the United States today. I could write about it for another 10 years and never run out of material. It is fascinating to explore all the ways in which Shiller revolutionized the field. I believe that lots of people will be getting in on this in the days following the next price crash, when lots of people who bought into the Buy-and-Hold concept will be more open to hearing challenges to it. We’ll see.

My best wishes to you and yours.

One-Issue Rob

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

I have read his books. He does not recommend VII. If you read your last post, you now confirm that he said you made an error with respect to John Greaney .

Wade Pfau loves Valuation-Informed Indexing. He spent 16 months researching it. He concluded that: “Yes, Virginia, Valuation-Informed Indexing works!” He told me that he was thinking about submitting the peer-reviewed research that we co-authored to the most prestigious journal in the field. Wade believes that Buy-and-Hold is the past and that Valuation-Informed Indexing is the future. There is nothing that would make him happier than seeing you Goons placed in prison cells, where you belong, so that he and hundreds of other academic researchers would feel free to do honest work on what the last 38 years of peer-reviewed research in this field teaches us all about how stock investing works in the real world.

Nothing that Wade said after you Goons threatened to send defamatory e-mails to his employer in an effort to get him fired from his job count for a thing. Extortion is a crime, a felony. There is a good reason why we elected as a people to make extortion a crime punishable with a prison sentence. We need to see our laws enforced in a reasonable manner. I am 100 percent confident that we will see those laws enforced in the days following the next price crash.

Wade Pfau was a hero in the days before you Goons threatened to destroy his career. The research that I co-authored with him is the most important research published in this field in the past 30 years. We intended for that research to benefit millions of people. Wade would still like to see that happen. But he is naturally afraid of what the Buy-and-Holders will do to him is he dares to “cross” them again by saying publicly what he truly believes about stock investing. He shouldn’t have to live in fear. No one should. The fact that a good number of Buy-and-Holders believe that the only way to “defend” their strategy is to engage in criminal behavior tells us all something important about the “strategy.” I myself was a Buy-and-Holder until I saw John Greaney advance his first death threat and 200 Buy-and-Holders endorse it.

Not this boy.

The most important contribution that the Buy-and-Holders ever made was their claim that investment advice should be rooted in peer-reviewed research. They were right the first time.

Wade Pfau Fan (The Honest Version!) Rob