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

It doesn’t require a valuations adjustment because it’s not relevant to the question, which is “What rate of inflation-adjusted withdrawal has lasted at least 30 years in all time periods to date?” The answer was 4 percent. No (credible) person has ever disputed that answer, because it’s simple, provable math.

This has been explained to you hundreds of times, but you reject it. Your entire 15 year jihad of futility is based on “NO!!! THAT’S NOT THE QUESTION!!!!”

I do reject what you are saying, Dan.

I believe that the question that a safe withdrawal rate study is supposed to answer is: “What is the safe withdrawal rate?” I know that that is what my fellow community members believed when they were using Greaney’s study to plan their retirements.

If Greaney had told them that all that his study revealed was “what rate of inflation-adjusted withdrawal has lasted at least 30 years in all time-periods to date” and that that number was nowhere close to the safe withdrawal rate (it was nowhere close at the time these discussions were going on), not one person would have been using his study to plan his or her retirement. But lots of people used it.

I of course always acknowledged that Greaney’s study reveals “what rate of inflation-adjusted withdrawal has lasted at least 30 years in all time-periods to date.” So that question has never been in any dispute. My claim has been that the Greaney study does not reveal the safe withdrawal rate. And Greaney’s behavior shows that he understands what I was saying and why it mattered. He never would have threatened to kill my wife and children if all he was telling people was “what rate of inflation-adjusted withdrawal has lasted at least 30 years in all time-periods to date.” He was telling people (falsely) what the safe withdrawal rate was.

Anyway, I think it would be fair to say that your response to my question is that Greaney did not include a valuations adjustment in his study. You did not state that directly even in this comment. But it is implied in what you said. And it is indeed the case that there is no valuations adjustment in the study. When the safe withdrawal rate is calculated accurately and honestly, the number obtained for retirements that began at the top of the bubble is 1.6 percent, not the 4.0 percent that Greaney claimed. So this is no small matter. The odds of a retirement that began at that time and that called for a 4 percent withdrawal working out are 30 percent. Those retirements are not “100 percent safe,” as Greaney claimed.

I would like to see all the Buy-and-Hold retirement studies corrected. I believe that we will see it happen in the days following the next price crash, when we all pull together to bring an end to this economic crisis and to the Buy-and-Hold investing strategy that served as the primary cause of it.

I wish you all good things.

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:

Those weeks were over 3 months ago. Has the second item been sent out?

Yes, the second item went out. And other items went out. But I have not gotten one item out per week to meet the goal that I set for myself in that earlier comment. Most of those communications will show up as blog entries in future days. So you Goons (and Normals too!) will be able to see who I contacted and what I said to them and how they responded in the event that there was any response.

I wrote about this in a long comment that I put up here about a week ago and that will serve as the text for a future blog entry. I am referring to the one where I explained that I am now attending Al-Anon meetings to develop more effective strategies for dealing with the “disease” of Buy-and-Hold. Get Rich Quick/Buy-and-Hold strategies are addictive. All of the problems that we see associated with addictions like alcoholism or drug abuse or gambling or whatever are present in the case of Buy-and-Hold. And those problems don’t just affect those who suffer from the disease; they also affect those who live among those suffering from the disease. This is why we have gone 36 years since Shiller published his peer-reviewed research showing that there is precisely zero chance that a Buy-and-Hold “strategy” could ever work for a single long-term investor without accepting the reality that we need to permit honest posting re that research. The pull behind Buy-and-Hold is not anything rational — it is pure emotion. So Buy-and-Holders cannot be reached through appeals to reason alone.

It may be that we will as a society become able to overcome our addiction to Get Rich Quick thinking only by first hitting bottom — that is, by experiencing the next price crash, which will bring on a deepening of the economic crisis that began in late 2008. The job today for those of us who love our country (and who of course love our Buy-and-Hold friends we well!) is to learn how to deal with addicts in a loving and yet honest way. I engage in work in that regard on a daily basis. Sometimes it is by attending meetings. Sometimes it is by reading literature. Sometimes it is by going on a walk and reflecting on my interactions with you Goons and on how Normals respond to those interactions.

I am not on a once-per-week contact schedule today. I believe that I will be there within a few months. After I achieve a once-per-week schedule, I expect to up the goal to a once-per-day schedule. It will happen. I would like to give you a target date. But I have learned from hard experience that it is not always possible for me to meet my target dates. We are dealing with tough emotional stuff. And no good purpose is served by me being hard on myself when I fail to meet a target. So I am going to resist the inclination to offer a new target date and just say that I continue to work on a daily basis on the emotional work that I believe will down the road a piece place me in circumstances where I will be contacting the owner of one web site (some investing oriented, some not) each day of the year. This is a numbers gam,. In time those efforts will pay off big time. I am 100 percent sure.

Wish me luck!

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:

“match the overall performance of the market and not beat it”

is the exact definition of buy-and-hold. It is the exact opposite of all market timing strategies.

As you well know.

No. Buy-and-Holders CLAIM that their strategy is not aiming to beat the market. That’s why I once found appeal in Buy-and-Hold. That’s why I became a Buy-and-Holder myself.

But this claim is fallacious. The P/E10 value is produced by the market. The Buy-and-Holders do not take the P/E10 value into consideration in any of their calculations. If they did, they would divide their portfolio values by two when prices are where they are today. The Buy-and-Holders IGNORE a key component of the market’s message.

If in Year One, the P/E10 is at fair value, all investors know the true value of their portfolios and are able to invest effectively and rationally. Now, say that prices are pushed up to two times fair value in Year Two. The Valuation-Informed Indexers continue to invest effectively and rationally. Their portfolio statements provide a number two times what they provided one year earlier. But the P/E10 value tells them to divide by two. So they are still using accurate numbers.

The Buy-and-Holders only listen to one part of what the market is saying. They listen to the price increase. They change all of their plans because of the phony change in that number. But they tune out the part of the market’s message where the market says that they need to divide by two to know the true value of their portfolios. They do this so that they can take a false comfort in the phony price message. They are trying to beat the market by using phony numbers to fool themselves re where they stand.

Why are the Buy-and-Holders not happy with a return of 6.5 percent real if they are not trying to beat the market? If the nominal market price goes up 30 percent in one year, the real gain is 6.5 percent real and the rest is cotton-candy nothingness, right? Why do the Buy-and-Holders count the cotton-candy nothingness as if it were real? They want to beat the market and refusing to do the calculations properly permits them to do so (at least in their own minds).

This is why we have crashes, Anonymous. There is no economic explanation for crashes. Crashes are emotional events. We have crashes when Buy-and-Holders realize that their phony numbers are not rooted in anything real, that they are the product of exercises in self-deception. The stock crash phenomenon is similar to what you see when a spouse who has been cheated on for years finally gets a clue about realities that his or her friends have known about for many years. He or she always “knew” what was going on but lied to himself or herself until the point when it became impossible to maintain the fantasy belief. At that point, the illusion “crashes.”

If you are not trying to beat the market, why do you refuse to adjust your portfolio value for the amount of overvaluation that applies today? Why do you not divide by two? The market produced that P/E10 value. Do you think you know better than the market what the P/E10 value should be?

We are as a people working through a transition in which we become self-aware of our stock investing illusions and thereby become able to rein them in so that they cannot do as much damage to us. That’s why Shiller’s 1981 findings were so “revolutionary” (his word). That’s why the man was awarded a Nobel prize for his work.

P/E10 is produced by the market. It is not something outside the market. Anyone who ignores P/E10 when doing stock-related calculations cannot claim to accept the market. Buy-and-Holders ignore an important part of what the market has produced.

Buy-and-Holders count the numbers that support their illusions and then refuse to count the ones that do not. That’s trying to beat the market, not acceptance of the market’s verdict re how much money you have to retire on. Buy-and-Hold is an exercise in self-delusion for so long as it ignores the effect of valuations on long-term returns. No Buy-and-Holder has ever been able to explain why he ignores valuations. He does so because it is by ignoring valuations that he is able to delude himself into believing that he has done the impossible, he has beaten the market in a convincing way, he has done what has never been done before. Yeah, sure he has.

All investors who claim to be able to beat the market have some rationalization that they put forward as their “proof” that they were the first in history to develop this amazing power. The Buy-and-Holders are no different than any of the others in this respect. Buy-and-Hold just happens to be the Get Rich Quick strategy that is most popular at this point in time (because it has been pushed so relentlessly by the Wall Street Con Men, who just happen by sheer coincidence to have become multi-millionaires by doing so).

Valuation-Informed Indexers ACCEPT that the economic realities permit an annual return of 6.5 percent real, nothing more and nothing less. We don’t have to delude ourselves that there are years when our portfolio values increase by 20 percent or 30 percent or 40 percent because we know that the 6.5 percent real return is enough to finance our retirements JUST FINE. We don’t feel a need to beat the market, just to match it. And we know that accepting the delusions that the Buy-and-Holders accept to permit us to fool ourselves into thinking that we are beating the market makes effective financial planning impossible and that we are far better off just not going there.

If you are not trying to beat the market, why do discussions of the last 36 years of peer-reviewed research cause you such intense emotional pain, Anonymous? All of your abusive posting is rooted in your intense emotional need to keep the illusion that you and you alone have figured out the way to beat the market. I am seeking to disabuse you of this foolish and dangerous illusion by pointing you to the 36 years of peer-reviewed research showing that a belief that valuations do not affect long-term returns is a fantasy.

I don’t need to beat the market for my plan to work. A 6.5 percent annual real return works JUST FINE for me.

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 think there was good reason why Shiller was awarded a Nobel prize.”

Shiller is back in the NY Times:https://www.nytimes.com/2017/06/23/business/in-long-run-theres-no-such-thing-as-an-einstein-investor.html

Juicy excerpts:

“without deep expertise, it makes little sense to veer much from a simple market portfolio — one that seeks to match the overall performance of the market, and not beat it.”

“No single strategy is likely to beat the market forever.”

VII is a single strategy. You say it always always ALWAYS beats the market. Shiller says you’re wrong.

That article is 100 percent in tune with Valuation-Informed Indexing, Anonymous.

The point of the article — that you can’t beat the market — is one that I associate much more with Bogle than with Shiller. This is why I list these two men as the two top investment advisers of all time. The two most important principles of successful long-term investing are: (1) you can’t beat the market; and (2) valuations always matter. Bogle has done the most to promote the first point and Shiller has done the most to promote the second point. Combine the two points and you have Valuation-Informed Indexing, the first true research-backed model for understanding how stock investing works.

It’s not the Valuation-Informed Indexers who are trying to beat the market. That’s the Buy-and-Holders. Valuations have been affecting long-term returns for 145 years now. Shiller did not publish his “revolutionary” (his word) peer-reviewed research showing this until 1981. But the data used in that research stretched as far back as we have good records for U.S. stock returns. The reality that Shiller was pointing to has been a reality since the first stock market was opened for business. Valuations have ALWAYS affected long-term stock returns.

The Buy-and-Holders are seeking to beat the market by pretending that through some magical, mystical process it is all going to turn out differently for them than it has turned out for every investor who ever walked the planet before them. Is there a one in 250 billion chance that it is all going to turn out different this time? Sure, there is always a one in 250 billion chance. But risking your life savings on a one in 250 billion chance is not investing, it is gambling. I mean, come on.

I agree that “no single strategy is likely to beat the market forever.” I believe that today’s Valuation-Informed Indexers will beat today’s Buy-and-Holders. That’s because the Ban on Honest Posting has created an artificial environment. When the Buy-and-Holders became so emotional about their “strategy,” they denied themselves the information they need to act in their own best interests in the investing realm. Naturally, there is a financial penalty associated with that. Markets have always imposed financial penalties on irrational behavior.

But that behavior will not survive the next price crash. As the penalty is imposed and the Buy-and-Holders experience in real life the pain that is only in their imaginations today and that drives their abusive behavior, they will work up the courage to have the discussions about the last 36 years of peer-reviewed research that they need to have to come to understand what they could have come to understand 36 years ago. Then they will be able to accept the average annual market return of 6.5 percent real that the Valuation-Informed Indexers already accept today.

The Buy-and-Holders are not today emotionally capable of accepting the market return. But there is a mountain of evidence that they would be THRILLED to accept the market return if only they could have the discussions they need to have to make the transition from what we all knew about how stock investing works in 1980 and what those of us who can bear to look at the last 36 years of peer-reviewed research are happy to know today. We are working our way through a process of learning and growth, Anonymous. Accepting the market does not mean the same thing today as it meant in 1980. Today part of what it means to accept the market (rather than to try to beat it) is to accept that valuations affect long-term returns.

Shiller says: “It makes little sense to veer much from a simple market portfolio — one that seeks to match the overall performance of the market and not beat it.” You suggest that you agree with that statement. If you agree, why do you not divide the number on your portfolio statement by two to determine the value of your retirement portfolio today? The P/E10 value is at two times fair value, is it not? Does it not follow that you need to divide by two to identify the true value of your portfolio? The market produced that P/E10 value. You are rejecting what the market has done, living in a fantasy world where the market has done something different than what it has done. You are not accepting the market, but trying to beat it.

When you brag about how much money you have made with your investing strategy, is that not evidence that you are trying to beat the market? I don’t do that. I calculate the return that I have made and I accept it. I am not tied up in it emotionally. I don’t have to brag because it is not important to my self-esteem for me to believe that I am smarter than everyone else when it comes to investing. I am just using the stock market as a tool to provide for my retirement, it’s not personal. For you it is very personal. I get the feeling from you that, if your investing strategy did not make you feel smarter than everyone else, it wouldn’t be worth following. I get the feeling from you that 90 percent of the game is these feelings of superiority that you get from following a Buy-and-Hold strategy and that the actual returns you receive are a relatively small matter. I don’t think that’s healthy. I just want to do what I need to do to finance my retirement and then turn my attention to more interesting matters.

The question here is: “What is a ‘simple market portfolio’?” Is a simple market portfolio one where the risk profile jumps wildly up and down over time? Or is a simple market portfolio one in which the risk profile remains constant, one in which the investors misses out on the irrational exuberance “enjoyed” by the Buy-and-Holder but then also misses out on the irrational depression experienced when his beat-the-market strategy fails and leaves his retirement hopes in ashes, just as Get Rich Quick approaches have done to so many other investors over the history of the market? Thinking that you are going to be the first investor so smart that he can beat the market is a long-term recipe for ruin, Anonymous. The market is bigger than you. The market eats those so arrogant that they think that they will be the first to beat it for lunch.

It’s not research-based strategies that are seeking to beat the market, Anonymous. It is Get Rich Quick strategies that are seeking to beat the market. You can easily see whether it is Valuation-Informed Indexers or Buy-and-Holders who are seeking to beat the market by noting which group is more emotional in the comments that it makes on discussion boards and blogs when these sorts of issues come up in discussion.

Valuation-Informed Indexing is Buy-and-Hold with the Beat-the-Market element removed. That’s why it has less immediate marketing appeal. It is that Beat-the-Market element that makes Buy-and-Hold such an easy sell; we all have a Get Rich Quick urge residing within us and strategies with strong appeal to that urge are going to make lots of money for their advocates in the short term. But as Shiller (and Bogle long before him!) argues, Beat the Market/Get Rich Quick is always a loser in the long run. Buy-and-Hold is what sells, but Valuation-Informed Indexing is what works.

These are my sincere thoughts re these terribly important matters, in any event.

I naturally wish you the best of luck in all your future life endeavors.

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:

Yet another article that says you are wrong, Rob.

http://svrn.co/blog/2017/5/14/waiting-for-the-market-to-crash-is-a-terrible-strategy

And can you tell us how his data is wrong?

It’s not his data that is wrong. It’s his thinking process that is wrong. This fellow is testing what John Walter Russell referred to as “Idiot Switching.” Idiot Switching never works. For obvious reasons.

The thought process behind Idiot Switching is that overvaluation is irrational and that the irrationality should be exposed by the market and that the smart investor should therefore be able to exploit this irrationality by timing his moves in and out of the market. It makes sense. I don’t deny that. But it doesn’t work. Idiot Switching has a TERRIBLE track record. My guess is that Idiot Switching does even worse than Buy-and-Hold in the long run. Sometimes it works just by luck. But the historical record shows that it is a very, very bad strategy. One of the things that I love about the Buy-and-Holder is that they have done more than anyone else to EXPOSE the flaws of Idiot Switching.

Look at what happened in the late 1990s. Stock prices were at insanely high levels in 1996. We were priced for a crash. Idiot Switchers got out of stocks. Then we had three years of the biggest gains in history in 1997, 1998 and 1999. If you want to know how stock investing works in the real world, you need to take a moment to try to understand why that happened, why Idiot Switching was such a disaster in that particular case and in fact fails just about every time it is tried.

The Idiot Switchers are applying reason to an unreasonable situations. They are saying “prices SHOULD come down because they are now so high.” But the entire reason why prices got so high in the first place is that investors are not rational but highly EMOTIONAL Those darned emotional investors DON’T CARE that stocks are priced for a crash, they just go ahead and send them to higher and higher price levels anyway despite the logic behind the Idiot Switching “strategy.”

Valuation-Informed Indexing is not Idiot Switching. Not in any way, shape or form. Valuation-Informed Indexers are as much opposed to Idiot Switching as they are to Buy-and-Hold. Idiot Switching is at heart really just another emotional approach, another marketing gimmick.

Valuation-Informed Indexing is a risk management approach. The core idea is that investors should be trying to keep their risk profiles roughly constant over time. Risk increases as price increases. So for an investor to keep his risk profile constant, he MUST adjust his stock allocation in response to big price swings. Do that and you reduce the risk of stock investing by 70 percent while also increasing your returns enough to be able to retire many years earlier. It is impossible to imagine any scenario in which keeping your risk profile constant would not produce good results and of course the entire historical record shows that taking this simple step has been paying off big time for the investors who follow it for 145 years now. It is impossible for the rational human mind to imagine any circumstances in which it would not.

A showing that Idiot Switching does not work is old, old news, Anonymous. Those who follow the research in this field have known what this guy is saying for a long, long time. To check the merit of VII, you have to do what Wade Pfau and I did in the research that we co-authored and had published in a peer-reviewed journal. We checked the merit of VII. That is of course something very, very different from what this fellow did.

That’s of course why you threatened to destroy Wade’s career if he continued to do honest work while you did not threaten this fellow in any way. Idiot Switching offers no threat to Buy-and-Hold. Once the American people are able to learn about Valuation-Informed Indexing, which is the first true research-backed strategy, there will be no more Buy-and-Hold. We will all pull together to bury the smelly Get Rich Quick “strategy” 30 feet in the ground, where it can do no further harm to humans and other living things.

That’s Rob Bennett’s sincere take re these terribly important matters, in any event.

I naturally wish you the best of luck in all your future life endeavors.

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:

Buy-hold-rebalance automatically accounts for valuations via rebalancing. You tend to ignore that fact since it doesn’t support the HocoAgena. Reality and Bat$hit Crazy Hocomania seldom meet.

Rebalancing does not account for valuations. Say that an investor determines that the proper stock allocation for someone with his risk tolerance is 80 percent stocks at a time when prices are at fair-value prices. Then prices double over the course of the year. Rabalancing will cause the investor to sell some stocks at the end of the year, the amount that he needs to sell to get back to an 80 percent stock allocation. But stocks are no longer selling at fair-value prices following a doubling in price. This investor is not going with a higher stock allocation than what is proper for someone with his risk tolerance.

This is the flaw at the core of the Buy-and-Hold project. This mistake always kills investors in the end. Unfortunately, it does not kill them quickly. It is like smoking four pack of cigarettes a day. The smoker can look at results at the end of one year and say to himself: “I’m doing fine, there’s no reason why I shouldn’t keep doing this!” But in the end it is going to get to him. It’s the same with the Buy-and-Holder. It kills you in the long run. You can get away with going with the wrong stock allocation for a long time but you cannot get away with it indefinitely.

No one ever has, according to the historical return data available to us. The trick is to turn to the peer-reviewed research for guidance re what works in the long run rather than the emotions you experience while testing out the strategy in your own life. Your tests are focused on one side of the equation — you see all the temporary benefits that follow from employing a pure Get Rich Quick strategy but you don’t see the downside until it it too late to do anything about it. The only way to see the entire picture is to open yourself to considering the peer-reviewed research because valid research is OBJECTIVE and can reveal long-term effects that your personal experience just does not catch up on.

I hope that helps a tiny bit, Long-Time.

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:

In September 2015 Shiller said the fair value for the Dow was 11,000. Now, with the Dow over 21,000, he says it could go up another 50%. So as a devoted follower of his every word, where do you put your money, when his words are going every which way?

Obviously Shiller’s Nobel Prize doesn’t mean he can predict the market any better than anyone else. As you have found to your great dismay and financial ruin.

I don’t follow Shiller’s every word. I think he is a giant in this field. But I of course also think that Bogle is a giant in this field. And I don’t think that there is any fair-minded person who would say that re Bogle I am “a devoted follower of his every word.” I take from Bogle what I find valuable and I am grateful for what I have learned from him. And I do the same re Shiller.

Shiller’s Nobel prize does not permit him to engage in short-term market timing any better than anyone else, in my assessment. But it sure do does permit him to engage in long-term market timing far more effectively than Bogle or any of the other Buy-and-Holders. Shiller predicted the economic crisis that began in 2008 in a book published in March 2000. Bogle sure didn’t do that. Shiller was able to do that because his research has taught him important thing about how the stock market works that Bogle has unfortunately not yet integrated into his thinking.

I agree 100 percent with Shiller that the market could go up another 50 percent. All that you need to do to see that this is so is to look at what happened in 1997, 1998 and 1999. In 1996, market prices rose to insanely dangerous levels. I took my money out of stocks in the Summer of 1996 because of those insanely dangerous price levels. And Shiller predicted in Federal Reserve testimony delivered in October 1996 that those sticking with high stock allocations despite those price levels would live to regret it within 10 years. Prices rose over the next three years by a lot more than 50 percent. I don’t see what more could be needed to prove this particular point.

My gripe with Shiller is that he focuses on the wrong point when he makes this accurate claim. Yes, stock prices could go up another 50 percent from the insanely dangerous levels where they stand today. What of it? Those who leave their money in stocks following a 50 percent increase starting from today’s price levels are going to give all that money back when prices return to fair-value levels (or to much lower levels) in the following years. So what real benefit is there in this? When Shiller focuses on this aspect of the question, he is saying words that are going to mislead a lot of people into underestimating the risks of investing heavily in stocks at today’s prices. That’s extremely unfortunate, in my view.

There is nothing wrong with Shiller saying what he said. It is a true comment and it is an important truth that he pointing to. But it is not the entire story. I would make that comment and then I would add the comment that a 50 percent price jump that starts from today’s price levels will not supply any long-term benefit to those sticking with their high stock allocations. That is the point that is poorly understood today (the vast majority of investors already appreciate that prices could go up another 50 percent from today’s levels). Today’s stock investors need to know that they should not be rooting for a 50 percent price increase, that a 50 percent price increase will hurt them in serious ways. That’s the new understanding of how stock investing works that follows from an appreciation of the “revolutionary” (Shiller’s word) research findings of 1981.

As for your comment that Shiller’s words “are going every which way,” I think there is some merit to this complaint. The answer here is to knock off the funny business. There are lots of experts in this field who would be 100 percent happy to share with Buy-and-Holders what the last 36 years of peer-reviewed research tells us all about how stock investing works in the real world. Most people don’t like to be threatened with violence and with career destruction. Rein in your most ugly emotions and you will hear sounder and clearer and more enriching and more helpful investing advice from just about everyone in this field. This extreme (and in some cases even criminal!) behavior affects what you hear from Shiller and lots and lots and lots of others. You are hurting yourself and lots of others in very serious ways when you continue to engage in your insanely abusive behavior.

All of this is my sincere take re these terribly important matters, in any event.

I naturally wish you the best of luck in all your future life endeavors, my good friend.

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:

“there has never yet in U.S. history been a secular bear market that ended with a P/E10 of more than 8”

But markets don’t consult history books when deciding where to move. There’s never been an *infinite* number of scenarios – until they happen.

There are millions of price patterns out there (“Apple stock has never dropped 20% when there’s been a drought in Texas”). But hunting for them and guessing they’ll reoccur is just silly. Markets have no memory.

I like this comment a lot, Anonymous. I don’t agree with your conclusion. But it is my view that the point that you are making is an important one and a helpful one.

I 100 percent agree with you that markets don’t consult history books. This goes to the mistake that short-term timers make. They look for patterns in the history books and they proceed on the assumption that these patterns are going to repeat. My view (and it is my very strong sense that you agree with me re this) is that these people are fooling themselves. Buy-and-Holders have a great distaste for the search for historical patterns. I generally share this distaste.

I say “generally” because I obviously find some significance in the pattern that I referred to in the comment to which you were responding. I say that we always drop to a P/E10 value of 8 before seeing the end of a secular bear market. If that is so, we are all (including those of us not even in the market) going to see a lot of pain in days to come. But you are of course correct that markets don’t consult history books. So why do I even bother pointing out this pattern? Patterns don’t matter. Why be concerned about it?

The reason why I give a small number of patterns a significance that I do not give to the sorts of patterns cited all the time by short-term timers is that I believe that Shiller did more than just point out a particular pattern (that’s really all he did — he showed that there is a correlation between the P/E10 value that applies today and the stock price that applies 10 years down the road –that correlation creates a return pattern that plays out over time). It’s not the pattern that Shiller pointed out that is so all-important. That pattern is interesting. But the existence of the pattern suggests something far, far more important. The existence of the pattern suggests that the Buy-and-Holders were wrong in their core assumption re how markets work.

The Buy-and-Holders believe that it is economic developments that cause price changes. This is a core belief. If this is not so, everything that the Buy-and-Holders have ever said is called into question. Shiller ripped our understanding of how stock investing works apart. This is why I always note that he called his 1981 research findings “revolutionary.” And this is why he was awarded a Nobel prize. Shiller did not just point to one particular pattern that has always applied. He challenged the fundamental premise of the entire Buy-and-Hold project. If the market is efficient /rational, as the Buy-and-Holders believe, then prices should play out in the pattern of a random walk. Shiller showed that they do not. Shiller showed that the market is not efficient/rational.

If the market is not efficient/rational, then what is it?

Shiller’s answer is that it is emotional. It is investor emotions that set stock prices, not economic developments. That’s why the title of his book is “Irrational Exuberance.” Shiller says (he doesn’t say it directly because he does not not want to be attacked by emotional investors but this logically follows from lots and lots of things that he does state directly) that you cannot trust the numbers on your portfolio statement — they are the product of investor emotion, nothing more, and emotions can change dramatically overnight. To say that you have enough to retire because your portfolio statement sets forth a certain number should give you little confidence because the number reflects cotton-candy nothingness (emotions), nothing more.

That’s not 100 percent true. That’s not quite the entire story. There is another element to this story.

The other element is that the stock market always does reflect the economic realities in the long term. If it was only investor emotion that matters, stock prices would go up and up and up and up and never come down. We would all vote ourselves instant retirements and our scheme would work because the numbers on our portfolio statements would support our scheme. We the investors comprise the market and the market determines what the numbers are on our portfolio statements and the numbers on our portfolio statements determine when we can retire. So we decide when we can retire. We can retire tomorrow if we want to. All we need to do is to persuade all of our investor friends to engage in the same fantasies that we want to engage in. Since the fantasies work to their benefit as well, this is not hard to do. The result is what we call a “bull market.” Except it never works. There is some other force that always causes bull markets to go “pop.”

This other force is common sense. We all have it. We cannot escape it. We all possess a Get Rich Quick urge and that is why we have bull markets. And we all possess common sense and that is why all bull markets end badly. It is the tension between our Get Rich Quick urge and our common sense that determines the numbers on our portfolio statements, not the economic realities. But our common sense longs for the economic realities to apply and so there is indeed a connection between the economic realities and the numbers on our portfolio statements. It is just that that connection applies only in the long term. Prices are always moving in the direction of the economic realities but it takes 10 years or sometimes even a little more than that for them to get there. Overvaluation can remain in place for significant stretches of time. But the economic realities always asset themselves in the end and those who take the numbers that temporarily appear on their portfolio statements too seriously make a very big mistake.

I care about the pattern that I cited because it shows how stock investing really works. I don’t care about the specifics of it because I don’t trust historical patterns any more than you do. But I care deeply about getting the numbers right. And it is not possible to get the numbers right if you ignore this tension between the Get Rich Quick urge that we all possess and the common sense that we also all possess that decides where stock prices are going to end up in the long run.

I want to get the numbers right. I take note of the patterns that I need to take note of to get the numbers right. I don’t take it beyond that. I don’t make precise predictions because I don’t trust historical patterns to tell me what I need to know to get precise predictions correct. But I refuse to ignore historical patterns that reveal to me the basics of how stock investing works in the real world and that warn me never, ever, ever to accept those portfolio statement numbers at face value. I adjust the emotion-rooted numbers to bring them more in line with the economic-reality-rooted numbers that would apply if we investors had better control of the Get Rich Quick urge that for many years now has made stock investing a risky enterprise (but that no longer needs to do so now that we know what the last 36 years of peer-reviewed research in this field teaches us).

Rob

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

Most people just go to the grocery and buy whatever is there. So it sounds like you fully support buy and hold.

When the price of milk increases, people complain.

When the price of stocks increases, people cheer.

That’s the problem, Laugh. It’s an emotional thing.

People can be educated to complain about increases in stock prices just as they complain about increase in milk prices. But those of us who want to help out are prohibited from doing so because it makes the Buy-and-Holders feel bad for people to learn the realities.

That has to change. If our economic system is going to survive, we need to find a way to provide access to honest and accurate posting about scores of critically important investment-related topics. We are on our way. We are as a society working our way through a process that gets us there and that liberates us all from the Get Rich Quick thinking that is at the core of the Buy-and-Hold project.

I am doing my part. I love my country. So I am doing my part.

You Goons desperately want to stop me. So you are doing all you can to hold me back.

The people of the United States will decide the matter. As one of you Goons put it not too long ago, the community will have its say. But you Goons make it sound as if the community decisions that resulted in bans on honest posting are final decisions. They are not. Communities are permitted to rethink matters after the members of the community lose most of their retirement savings. That’s certainly what happened with the community that celebrated the owner of the Madoff Fund as “Saint Bernie.” You don’t hear anyone referring to him as “Saint Bernie” today while he watches television in his prison cell.

The community of people who comprise the United States of America is working its way toward achieving the biggest advance in its understanding of how stock investing works ever experienced in history. We are in the process of coming to see that buying stocks is just like buying milk, there are some prices at which the value proposition is amazing, there are some at which it is good and there are some at which it is poor. Once we all start buying stocks the way we all already buy milk, we will never again see another bull market. Which means we will never again see the bear markets that inevitably follow from bull markets. Which means that we will never again see the economic crisis that inevitably follow from bear markers.

I don’t like economic crises. They hurt millions of good people. So I oppose the Buy-and-Hold “strategies” that create them. I follow and recommend the first true research-based investing strategy, Valuation-Informed Indexing. I am 100 percent confident that everyone in this field will be working with me to help spread the word re Valuation-Informed Indexing once we all see the damage done by the promotion of Buy-and-Hold with the arrival of the next price crash. But we are going to have to wait to see how things play out in the real world to get you Goons on board. I have a funny feeling that you are not going to be willing to come clean just because I put forward some words about things I am 100 percent sure we are going to see happen in coming days.

Can you just calm down a bit until the next crash arrives and and then resume these discussions at that time? I sincerely believe that that’s the best way to proceed given the circumstances that apply today.

I wish you all the best that this life has to offer a person in any event, my long-time Goon friend.

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:

“The amnesty will let a lot of people off the criminal hook while containing funding to aid the transition to Valuation-Informed Indexing.”

So, you believe there will be Federal money spent to promote VII?

The economic crisis that was caused by the promotion of Buy-and-Hold “strategies” is the #1 public policy issue of our time. It is scaring millions of people that their economic circumstances are getting worse and worse at a time when they should be getting better and better. Our economic system is working. It is producing huge advances in productivity. But the money is not finding its way into the pockets of the millions of hard-working middle-class people who produced it. It is all being funneled through the miracle of Buy-and-Hold into the pockets of a small number of Wall Street Con Men. And we are seeing political frictions on both the left and the right as a result. These frictions will worsen with another huge price crash.

We are going to have to do everything we can as a society to open up some space for accurate and honest presentations of what the last 36 years of peer-reviewed research tells us about how stock investing works. There was a time when we did not spend Federal money on environmentalism. We do today. There was a time when we did not spend Federal money on education. We do today.. There was a time when we did not spend Federal money on anti-discrimination efforts. We do today. So, yes, I think it is entirely possible that we will elect as a society to spend Federal money to assure that nothing like this current bull market (and the massive act of financial fraud that keeps it going) ever happens again. I could see that happening.

I am someone who believes that Federal programs that are well-intentioned can get out of hand because, once they are put in place, they are not monitored carefully and there is a gradual drifting away from the original purpose. So, personally, I would prefer seeing this done though the private sector. There are huge amounts of money to be made giving accurate and honest and research-based investing advice. Once we begin enforcing the laws against financial fraud, everybody in this field is going to be presenting himself as a Valuation-Informed Indexer and the word re what works will spread quickly. We have seen on the various boards that the hunger for honest investing advice is HUGE. So we can easily get the job done without the adoption of any Federal programs.

However, the full reality is that Shiller’s research shows that how people go about investing in stocks is a public policy question. The stock market is where most of us put our life savings. It matters what happens to our life savings. We all have a Get Rich Quick urge within us. So we are always as humans inclined to fall for Get Rich Quick strategies. Once those strategies become popular, they are VERY hard to defeat. Get Rich Quick strategies provide HUGE short-term payoffs. And so bull markets always get out of control. Once a bull market gets out of control, it becomes impossible for the “experts” who promoted them to acknowledge their errors, even in the face of mountains of peer-reviewed research revealing them, because they have caused so much human misery at that point that they just cannot bear to own up (even in their own minds!) to what they have done. So this is a serious business.

I don’t personally think that we need a Federal program. I think this can be done through educational efforts, which can be done through the private sector. I personally think that is the way to go. But I also think that it makes sense to adopt some sort of amnesty. Lots of people are potentially on the hook both criminally and civilly who really just got caught up in something a lot bigger than them. Wade Pfau obviously had every intention of using his talents to help people. He 100 percent wanted to do honest work. The evidence re that point is simply overwhelming. So I believe that he should be left off the hook for things he did because he was worried that he would not be able to feed his children if he continued to do honest work in the face of the threats delivered to him by the Bogle Goon squads. There are thousands of Wade Pfau’s out there. An amnesty is appropriate.

But how do you sell the amnesty? Wade’s story evokes sympathy. To someone who has not lost most of his life savings as a result of Wade’s criminal actions. Someone who has lost most of his life’s savings as a result of Wade’s criminal actions is going to have a hard time going along with an amnesty. Millions of people are going to be very, very, very angry following the next price crash, and understandably so. We are going to need to do something to address that anger. Adopting a Federal program that insures that nothing like this can ever, ever, ever happen again might be the way to go.

It might be that we provide an agency where people can go to obtain educational materials when they hear some investing “expert” pushing some strategy that sounds plausible on the surface but that causes warning bells to go off suggesting that the story doesn’t quite add up. That’s how I felt about Buy-and-Hold in the days before Greaney’s first death threats, when it became clear to me that the entire thing was a huge con. I would have liked to have been able to call a number and have someone point me to materials showing that the idea that there is some mystical, magical research somewhere showing that the claim that there is no need to practice long-term timing (price discipline) when buying stocks is a lie. It was Wade Pfau who told me that when we were doing research together. It would have been a lot easier just to be able to call a Federal agency and have someone not getting rich pushing the purest Get Rich Quick garbage ever concocted by the human mind tell me the straight story.

My personal vote would be not to have Federal money spent cleaning up this mess. But I can easily see it happening. And it could be that I am wrong in my inclinations. A lot of people didn’t think Social Security was a good idea. My inclinations would probably have been to oppose Social Security. I have come to believe that it was a good idea. I am beginning to feel that way about Obamacare. I certainly did not support it when it was being considered. But I think it would be fair to say that efforts to repeal it have not played out well. Perhaps we need some kind of Federal program ensuring that everyone has access to basic health care. Perhaps some of us get stuck in old ways of thinking and become too reactionary in our thinking. Perhaps I am just letting the liberal side of me come out and play a little bit today.

I am not able to give you a definitive answer to your question, Anonymous. How we proceed is something that we are going to decide as a society. Each and every one of us is affected by this massive act of financial fraud. We are all going to get to have a say on how to turn things around. We have a great economic system. But I think that it would be fair to say that capitalism runs on the pursuit of self-interest; that is the driver of our system. In most areas, that works okay. But in the investing realm, there is a huge payoff for telling horrible lies to people about what the last 36 years of peer-reviewed research show us about how stock investing works in the real world. That needs to change. Of that I am 100 percent certain. There are lots of good people trying to do good work in this field. But they hold back from doing that work in an effective manner because they live in fear of what the Wall Street Con Men will do to them if they put forward a fully honest statement or two. That simply must stop.

Our system is based on incentives. The incentives get too out of whack in the investing realm because Buy-and-Hold can be such an amazing winner in the short term and such a horrible loser in the long run. I still believe that we can address the problem in the private sector. But I certainly don’t object to turning to the government sector for help if that is what is needed. I want to see my Wall Street Con Men friends doing the sort of work they intended to do when they first entered this field, in the days when Buy-and-Hold was just a gleam in Jack Bogle’s eye.

The bottom line is that we will do what we need to do to open up access to honest discussion of safe withdrawal rates and scores of other critically important investment-related topics to every investor on the planet. We must do that and so we will do that. If we can do it without adoption of Federal programs, I would vote for doing it without the adoption of Federaal programs. If it takes Federal programs to keep in check the greed of the Wall Street Con Men, then so bet it, you know? My priority is the preservation of our economic system and of our political system. I have a funny feeling that, deep down in his heart of hearts somewhere, that is my good friend Jack Bogle’s priority too.

We will see how it all plays out in days to come.

Rob