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

How many people went to prison during previous crashes?

I don’t know. I recall Bernstein saying that there were congressional hearings re Wall Street Corruption following one of the earlier crashes. But I don’t know if people went to prison or not.

But this is a very different situation. The three earlier crashes came before the publication of peer-reviewed research showing that there is zero chance that a strategy not calling for the exercise of price discipline (long-term timing) could ever work for even a single long-term investor.

We did not as a people know what worked in stock investing prior to 1981. It’s unfortunate that we suffered those three earlier economic crises. But I think you have to say that crashes were just one of those things in those days.

From 1981 forward, we knew. Or at least those who claim to be experts in this field certainly should have known. If you know about the last 34 years of peer-reviewed research and continue to advocate a Buy-and-Hold strategy, you are in an objective sense engaged in financial fraud. If you claim to be an expert and have not bothered to educate yourself about the last 34 years of peer-reviewed research, that’s also fraud.

Please note that I used the phrase “in an objective sense.” There are millions of good and smart people who today possess a sincere belief in Buy-and-Hold. Those people are not guilty of fraud. They are wrong, according to the research. But one element of fraud is bad intent. Someone who is wrong because the subject has not been discussed widely and because he thus does not possess a full understanding of the realities is not guilty of fraud.

But those who have put up posts in “defense” of Mel Linduaer and John Greaney cannot claim that they do not possess bad intent. Their actions show their bad intent and their actions have been recorded in our Post Archives.

I don’t believe that even all of those who have put up posts in “defense” of Mel Limdauer and John Greaney will be going to prison. I believe that we will have Congress pass some sort of amnesty that will let lots of people off the hook. I see that as a sensible way to go.

But I find it hard to believe that the amnesty will cover those who have posted in “defense” of Mel Linduaer and John Greaney on numerous occasions and at numerous places and over a long period of time. I am not God. I could be wrong. But I cannot honestly say that I am able to imagine a scenario in which there will not be a good number of people going to prison following the next crash.

And you of course feel the same way about it, Anonymous. If you didn’t, you wouldn’t be posting here today. And of course the members of your jury will come to the same conclusion when they read the words of your posts here. I mean, come on.

I hope that helps a small bit.

Rob

 

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

I’ve posted Entry #1 to my weekly Valuation-Informed Indexing column. It’s called Market Valuation Fluctuations Are Implicit in All Investing Advice.

But they’re not, Anonymous.

The purpose of the Retire Early board at Motley Fool was to help people to prepare for early retirement. One of the things that aspiring early retirees must do is to insure that there are no holes in their plan, that they are being responsible and safe. There comes a day when early retirees must hand in their resignations from their corporate jobs. That’s a big step. You cannot go back to the same high-paying job 15 or 20 years later if you determine that you made a mistake in your planning.

The purpose of a safe-withdrawal-rate study is to come up with a withdrawal amount that is highly conservative. The idea is to see what would work in the WORST-CASE SCENARIO. That’s what Greaney told people he was doing in his study. He wasn’t claiming that a 4 percent withdrawal was kinda, sorta safe. He claimed that it was “100 percent safe” (that phrase appears in his study). And the people at the board BELIEVED that that was what they were getting — a number that was virtually certain to work out.

If you don’t include an adjustment for the valuation level that applies on the day the retirement begins, the number you get at all times is 4 percent.

If you include an adjustment, the number you get when stocks are priced as they were in 1982 is 9 percent and the number you get when stocks are priced as they were in 2000 is 1.6 percent. For a retiree with a $1 million portfolio, that’s the difference between living on $16,000 per year and living on $90,000 per year. That’s not a small difference.

If you don’t include an adjustment, the odds of a retirement with a 4 percent withdrawal working out are indeed 100 percent, presuming that stocks continue to perform in the future at least somewhat as they always have in the past.

If you include an adjustment, the odds of a retirement with a 4 percent withdrawal working for 30 years for a retiree who started his retirement in 2000 are 30 percent.

There are millions of people who sincerely believe that a valuations adjustment is not needed. But have they looked at the numbers?

In most cases, they haven’t looked at the numbers. I know this because I watched the reactions of people who were using the Greaney study to plan their retirements when I told them what the numbers say. These are the people who endorsed Greany’s post saying that he was going to kill my wife and children if I continued to post honestly re these matters. That is not a normal reaction. That is the reaction of people in great emotional pain. I was telling people something that they had never considered and that they very, very much did not want to hear.

If all I had wanted to do was to turn a quick buck, my reaction should have been to shut up about the effect of valuations and go back to posting about saving strategies, thereby regaining my position as the most popular poster at the Motley Fool site. But the reaction that I was seeing told me that I HAD to pursue this no matter how unpopular I became as a result. The death threats and all the other abusive stuff told me that people were NOT implicitly including valuations in their planning.

They TOLD themselves that they were doing so. I can go along with that. And they BELIEVED that they were. I can go along with that. But they had never run the numbers. It’s an amazing reality. But this has been proven to be the case beyond any reasonable doubt whatsoever.

I hadn’t run the numbers myself. I am the one who put up the May 13, 2002, post and even I had never run the numbers. I knew that a study that lacked a valuations adjustment had to be wrong. But I had no idea how far off Greaney’s numbers were. I would have guessed that the SWR in early 2000 was 3 percent. It turned out that it was 1.6 percent. I am the guy who started this and I would have been wildly wrong about the numbers myself had I ventured a guess before John Walter Russell did his research reporting the realities to us all.

Shiller’s 1981 finding truly was “revolutionary,” just as he has said. It was so revolutionary that Shiller holds back from reporting the most important implications of his finding in his own book. He gives us enough information to figure things out for ourselves if we care to do so. But of course most people do not care to do so. Most of us love the fantasy that our portfolio is three times bigger than what it is in reality. Stocks were priced at three times their fair value in 2000. Millions of people were going about the business of financial planning with no idea whatsoever what the size of their portfolio was. That’s not good.

There is not one school of thought in the academic community as to how stock investing works. There are two. Eugene Fama has been awarded a Nobel prize and his research supports the Buy-and-Hold Model. Robert Shiller has been awarded a Nobel prize and his research supports the Valuation-Informed Indexing model. Every investor alive on Planet Earth today needs to be educated in both models so that he or she can choose which one he or she will follow. This is not optional. This is 100 percent imperative.

It is a felony under the laws of the United States to block people from learning what they need to know. You have committed multiple felonies. You will in all likelihood be going to prison in future days for what you have done over the past 13 years.

That’s too sad.

We are the luckiest generation of investors ever to walk Planet Earth. We are the first generation that knows what it needs to know to reduce the risk of stock investing by 70 percent (as Wade Pfau and I showed in the peer-reviewed research that we co-authored). And you will be going to prison in future days because of the 13-year Campaign of Terror that you have led against our board and blog communities because you can’t stand for millions of people to learn hugely important stuff that you did not always known solely because humankind itself did not always know all there is to know about how stock investing works.

Could anything be more sad?

I cannot join you in your efforts. I will continue posting honestly. I can do no more and I can do no less.

I naturally wish you all the best that this life has to offer a person, my old Goon friend.

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:

By the way, you were proven wrong on SWRs by Wade Pfau and you keep talking about death threats that you refuse to prove. Those are just two more points you bring up to try and explain your failures.

I am the person who discovered the errors in the Old School safe-withdrawal-rate studies, Sammy. Those studies should all have been corrected within 24 hours of my famous post of the morning of May 13, 2002.

It was nearly 10 years later that the Wall Street Journal ran its story pointing out that the famous “4 percent rule” is in error. That rule was at the core of THOUSANDS of articles on retirement planning that appeared at hundreds of web sites. MILLIONS of middle-class people will be suffering failed retirements as a result of the failure of the experts in this field to correct that error promptly when it was discovered. Even today, when everyone acknowledges that the 4 percent rule is wildly off the mark, none of the people who pushed it in earlier days have acknowledged the error.

This is a field where people don’t admit their mistakes. The “experts” in this field feel that they need to persuade their clients that they are super-human and thus incapable of making mistakes. It’s not so. And we all are suffering in serious ways as a result.

I believe that acknowledging mistakes is going to be coming into fashion following the next crash. I don’t believe that most investors expect their advisors never to make mistakes. I believe that most people just expect that mistakes that are discovered will be promptly acknowledged and corrected.

I guess that we will see what happens following the crash. I know what I believe will happen. I believe that we will all pull together because we will all be too scared to play these stupid games any longer. I will be working side-by-side with Jack Bogle and with all of my other Buy-and-Hold friends. Nothing could make me happier.

Anyway, we will see how it goes as events continue to play out.

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

Rob

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

You must be missing the literally thousands of valuation posts and Bogleheads and elsewhere.

I’m not missing them, Anonymous. I acknowledge that there are thousands of valuations posts. I say that it is not only the volume of valuation posts that matters. The RANGE of valuation recommendations matters too.

Say that millions of investors are counting on their portfolio values to be real at a time when stocks are priced at two times fair value. Posters who argue for lower stock allocation cause emotional distress for those millions of investors. An argument that one’s stock allocation should be low suggests that stocks do not offer a strong value proposition. Investors who are counting on the money in their stock portfolio to be real don’t want to hear that. There are all kinds of ways that those investors can impose social pressures to keep recommended stock portfolio percentages high.

Should those of us who believe that low stock allocations are appropriate at times of high valuations give in to those pressures? I say “no.” I say we hurt everyone when we do that. Those who really favor high stock allocations should of course say just what they believe. BUT SO SHOULD THOSE WHO FAVOR LOW STOCK ALLOCATIONS.

Say that social pressure in favor of high-stock-allocation recommendations causes us all to increase our recommended stock-allocation-percentage by 30 percentage points. Those who think 20 percent stocks is right say that they believe that 50 percent stocks is right so that they will win popularity points. Those who think 40 percent stocks is right sat that they believe 70 percent stocks is right to win popularity points. Is that a good thing? I think it is a HORRIBLE thing. You can’t trust what anyone says when everyone is upping their numbers so that they can sell more books or whatever.

Greaney recommends 90 percent stocks. All signs are that he is sincere in that recommendation. So good for him. But Greaney never faces any social pressure to lower his recommendation. I favor an allocation of 30 percent at today’s prices. I face ENORMOUS pressures to lower my recommendation. I am told that I will be banned if I don’t post dishonestly. I refuse to let the social pressures influence what I say. But how many of those who have grave doubts about the high stock allocation recommendations dare to stand up to those pressures? Most do not. So you don’t even know what the real range of opinion is. When you only hear recommendations from 50 percent and up, you can easily be fooled into thinking that that is the consensus view even though you would hear very different numbers if people felt free to post honestly.

Say that you are a liberal. Would you trust a conservative site to tell you the true story re a political development? Or the other way around? I wouldn’t. People are BIASED. We all are. With investing, the bias is not ideology-based but time-based. There is a huge bias in favor of stocks when stocks are priced as they are today. And then the bias swings in the opposite direction after prices crash. You are getting the wrong story at both times. People should be more negative about stocks when they are insanely overpriced and people should be more positive about stocks when they are insanely underpriced.

The reason why I fell in love with Buy-and-Hold a long time back is that Buy-and-Holders argue that we should use peer-reviewed research as a guide and doing that would permit us to escape from the emotional biases that does such harm to investors. I gave up on Buy-and-Hold when I saw that the claim that we should root our strategies in the research is a con.

Buy-and-Holders SAY that they like to take the research into consideration. But mention the 34 years of research showing that valuations affect long-term returns and they demand that you be banned. Once you do that, you lose any virtue there is in basing your decisions on the research. If you lie to yourself and others about what the research says, it no longer plays the role of keeping things objective.

We might as well not do any research if we are going to ban research that shows the dangers of our biases. Once you become selective about what research may be discussed, you turn the idea of rooting one’s strategies in research into a negative. Your information is all the product of subjectivity but you are fooling yourself into believing that it is objective. That’s the worst of all worlds.

It is not enough to discuss valuations. We must permit HONEST discussions of valuations.

Rob

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

Uh oh, Rob. Take a look at this:

http://www.wsj.com/articles/how-to-think-about-risk-in-retirement-1417408070?tesla=y&mod=WSJ_PersonalFinance_Taxes&mg=reno64-wsj&url=http://online.wsj.com/article/SB11186790908283423711204580258532832629458.html?mod=WSJ_PersonalFinance_Taxes

Bill, Wade and Michael are showing RESEARCH that adjusts stock allocation on age and not valuation. You better get over there and set them straight.

Here is some peer-reviewed research for you and it doesn’t align with your VII.

Whatchagonnadoaboutit??????

I don’t know where you come up with the idea that this article doesn’t align with Valuation-Informed Indexing, Anonymous, It aligns very well although it certainly does not present the full picture and is misleading (I presume inadvertently — but still…) to the extent that it fails to do so. John Walter Russell and I often discussed the points being made in this article. They are important points and they need to be made more forcefully and more frequently.

I love this paragraph:

“The reverse-glide-path approach, then, works because it starts out with a large, ultrasafe liability-matching portfolio and a small risk portfolio. As the retiree ages, the LMP gets spent down and the RP gets larger.”

I am not too crazy about this one:

“There’s nothing special or new about this; it’s simply a variant of the long-established “two-bucket” approach that separates, with mental accounting, a safe portfolio dedicated to essential living expenses from a risky one aimed at one’s heirs, charities and the odd business-class seat.”

Nothing under the sun is 100 percent new. But setting up a two-bucket approach is a HUGE advance over the conventional advice of the past. This sort of language suggests that this is less of a big deal than it is. I would play it just the opposite way. We all should be celebrating the advances in understanding of retirement planning that we have seen in recent years.

The reason that Bernstein is trying to undersell the advance is that he doesn’t want to hurt the feelings of the Buy-and-Holders. That’s stupid. The goal should be to help INVESTORS. And the full truth is that the Buy-and-Holders deep in their hearts want to make the shift to better-informed strategies in any event. They WANT to see the ball moved forward and they want to be part of the effort to move it forward. So there is an important sense in which they WANT to see how their earlier ideas were flawed.

The people who are getting things right and thereby helping us all should STOP APOLOGIZING for doing so. Or at least that is my sincere take re this terribly important matter.

The core issue in retirement planning is balancing two realities that push the person creating a retirement portfolio in opposite directions. You must have stability because this is the money you need to live in for the rest of your life and you can’t afford to take a significant chance that you will lose it. The obvious way to do that is to go non-stocks since stocks are the most volatile asset class.

HOWEVER, retirements can extend for 30 years or even longer in the case of early retirees. To give up the return edge provided by stocks for that length of time is to take a devastating hit re your total lifetime return. So you can’t just go no stocks or low stocks. How do you balance these two competing considerations? That’s the challenge of effective retirement planning.

The development of the safe-withdrawal-rate concept represented a big step forward in our thinking. Once you identify the SWR, you have the best of both worlds. You have a very high degree of safety because your plan works even in a worst-case scenario. And you are able to go with the highest stock allocation possible given your desire to have that high degree of safety.

The SWR concept is gold. People who denigrate the concept because the Old School studies get the numbers wrong are making a terrible mistake. They are cutting off their noses to spite their faces. It is foolishness. What you want to do is to correct the darn errors so that you have LEGITIMATE and ACCURATE SWR studies.

It makes perfect sense for those close to retirement to lower their stock allocations a bit. All else being equal, an asset class of high volatility is less attractive for those either close to entering the distribution stage or already in the distribution stage. That part of this article makes perfect sense.

The reason why you jump to the conclusion that this article does not align with VII and the reason why the article is in part misleading is that it ignores the valuation effect. Yes, age matters. But valuations matter far more! The valuation effect is by far the dominant effect.

Building two buckets makes perfect sense. That is gold. And the reality is that in many circumstances you only need the safe bucket for the first 10 years of retirement. That’s the danger zone, the time-period when taking a bit hit will cripple your plan’s prospects for surviving 30 years. If you play it safe for those 10 years, you will in all likelihood have built up enough reserves from the portion of your portfolio that is in stocks to be able to diminish the size of the super-safe bucket.

The flaw in the article is that, when you ignore valuations, you get all of the numbers wrong and so you cannot make intelligent choices re any of the various moving parts of the plan. The peer-reviewed research shows that those who retired in 1982 had a safe-withdrawal-rate of 9.0 percent if they went with 80 percent stocks. In contrast, those who retired in 2000 had a safe-withdrawal-rate of 1.6 percent. The difference in those numbers is staggering. Anyone who ignores the difference in those numbers in the crafting of a plan is shooting in the dark. To rule out consideration of valuations is to render the task of crafting a successful retirement plan 20 times harder than it is for those open to using the peer-reviewed research of the past 33 years as a guide.

I am 100 percent in favor of the two-bucket approach. That concept is gold. But to implement the two-bucket approach or any other approach effectively, you have to be willing to look at how the numbers change when you move from a high-valuation environment to a low-valuation environment.

Bernstein is wrong when he suggests that the intellectual advances we have seen in retirement planning in recent years are less than huge. They are positively huge. The reason why he cannot today see what a big deal the recent advances are is that he is not yet open to declaring the core Buy-and-Hold claim that exercising price discipline when buying stocks is 100 percent discredited by the last 33 years of peer-reviewed research in this field. Leave out the most important consideration and you get all the numbers wildly wrong regardless of how many buckets you employ.

We are almost there. We are the luckiest generation of investors ever to walk Planet Earth.This article makes important points that all investors need to know about.

And of course Bill and Wade and Michael all would very, very much LOVE TO BE ABLE TO OFFER 100 PERCENT HONEST AND ACCURATE RETIREMENT PLANNING ADVICE.

They are not going to do it until Jack Bogle gives that “I Was Wrong” speech, Anonymous. They are not willing to be put through what they have seen many of their peers put through by the Buy-and-Hold Mafia for the horrible, horrible crime of reporting accurately and honestly what the peer-reviewed research of the past 33 years tells us. They need to feel safe before they are going to be willing to help us in the manner in which they very, very much WANT to help and in which we all very, very, very much NEED them to help us.

We’re on the one-yard line.

I believe that we will be able to get the ball in the end zone shortly after the next price crash hits.

Hang in there, Goon man. It gets better. A LOT better.

Thanks much for the link. That’s helpful stuff.

Rob

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

I think even as late as last year you were taking your “career” somewhat seriously, with website redesigns and videos. Your recent lack of effort shows complete capitulation.

There’s some truth to that, Anonymous.

I haven’t given up. I see this as the most important economic and political story of my lifetime. I know by the reaction I have seen over the first 12 years that there are millions of people who would like to be able to learn about a smart and simple and safe way to invest in stocks. I know that there are many, many investment advisors who would like to be doing honest work. I know that there are many academic researchers who would like to be doing honest work. I know that there are many personal finance journalists and bloggers who would like to be doing honest work. There are people who would like to be creating calculators that report accurate numbers and there are people who would like to be creating books that explain what the last 33 years of peer-reviewed research says and on and on and on.

So there’s huge interest. And there’s huge need. And I believe that as a society we will work up the courage and love it will take to overcome this problem. I believe that that is going to happen following the next price crash, which according to the research is not too far away. So intellectually I am a bigger believer in the importance of pushing the Valuation-Informed Indexing message than I have been at any time in the past. If you intended to suggest that I have somehow “capitulated” on the need for honest posting about investing questions, then you couldn’t possibly be more wrong.

But if you are intending to suggest that there has been a change in my level of public activity re these matters in the past year or two, you are right.

It’s painful for you Goons to acknowledge having made mistakes in your investing choices. That’s why as a society we are in the fix we are in. Guess what? It’s painful on my side too. It’s emotionally painful pointing our people’s mistakes to them.

There is something in human nature that makes this hard. We all care what our friends and neighbors and co-workers and fellow community members think of us. A simple way of putting it is — We want to be liked. If you want to see how that affects what people who are informed about the peer-reviewed research talk about it, take another look at the blog entries describing the e-mails that I exchanged with Wade Pfau.

Wade LOVED exploring this stuff. The 16 months he spent working with me were the happiest 16 months of his life. He used to stay up late just thinking about this stuff and plotting out new ways to help millions of people by exploring all of the many powerful insights we have mined but kept secret over the past 33 years. He was talking about winning a Nobel prize. He couldn’t believe his good fortune in having stumbled upon a research topic that would do so much good for so many people, a research topic that would liberate millions to live far richer lives and one where all of the data was on one side so the findings were clear and sharp and pointed to hundreds of exciting real-world implications. After you take that stuff in, investigate why Wade flipped to the Goon side.

Part of it is the obvious stuff. He wanted to be successful in his career. He has financial responsibility for two small children. He didn’t want you Goons destroying his means of making a living. He saw that Jack Bogle supported you and that scared him. He knows that Bogle has money and power and connections and he knows that he doesn’t hesitate two seconds to put those advantages to use destroying anyone who dares to “cross” him by telling the truth about what the last 33 years of peer-reviewed research in this field tells us about how stock investing works. Wade’s fears over what the Buy-and-Hold Mafia would do to his career were the primary reason why he agreed to stop doing research on Valuation-Informed Indexing and to stop promoting the research he had already published with me at the time he flipped.

But there was also another factor at play.

Wade thinks of himself as a good person and for good reason — he IS generally a good person (I of course believe this to be so of all of my many Buy-and-Hold friends). So it wasn’t an easy thing for him to do to make that flip; Wade isn’t in the habit of going along with massive acts of financial fraud that are likely to destroy millions of middle-class lives. When people engage in behavior like that, they need to rationalize the decisions they make as representing something more than the advancement of their self-interests. If you listen closely to the things that Wade was saying when he felt pressures being brought to bear on him, you will hear what he was telling himself. He was telling himself that it is important to be part of the club, not to be an outsider, not to say things that stir up trouble or that makes people feel uncomfortable with choices they have made for themselves or have encouraged others to make.

This comes across clearly in one of the quotes from Wade that I use in the slider at the top of all the pages at this blog. Wade said at the Bogleheads Forum one time something to the effect of: “You see people who push market timing as slimey sellers of snake oil. I don’t want to be seen as that sort of person.” Wade wants to fit in. We ALL do. I’m like all of the other humans. I want to fit in too. So I feel pain just like Wade and just like all of the others when I am painted as some sort of promotor of snake oil or something along those lines.

I’ll tell you something that I find odd that I have seen play out numerous times. I sometimes have people show skepticism over the ideas that I advance and I sometimes have people show a good deal of acceptance of those ideas. Guess which type of experience hurts the most?

It hurts more when people show acceptance.

Not because I don’t want people to accept the ideas — I obviously do want that. But because of all the social pressures that people feel not to tell the truth about how stock investing works, I usually do not gain much traction even among people who accept the ideas. A perfect example is the blogger named “Mr. Money Mustache.” I had dinner with Mr. Money Mustache at one of the financial blogger conferences. We had a great and long conversation about all sorts of things. He’s a super guy and he has a hugely successful blog. He found great merit in Valuation-Informed Indexing and would obviously love to share it with all his readers. And if he promoted the idea, this would be over. He has a huge number of readers and they would share it at other places and The Great Wall of Corruption would come tumbling down.

Mr. Money Mustache elected not to write about Valuation-Informed Indexing at his site. He didn’t offer me much of an explanation of why he made that choice. He said something about how, no matter how great an idea is, there are people who will find ways to criticize it. There clearly is something that causes him to hold back. This is not a fellow who is afraid of offending corporate interests. He once let go of an advertiser who was bringing him thousands of dollars per month because it insisted that he stop using obscenities in his articles. He not only told the advertiser to go to hell, he told the story on a stage at the financial bloggers conference. So he is not the type whom you would expect to be afraid to go up against the big money boys who push all the smelly Buy-and-Hold garbage.

So why did Mr. Money Mustache not blow the whistle on this massive act of financial fraud?

I think it’s that concern about not being liked that affected Wade and that affects all the humans, including me. Mr. Money Mustache wants to be liked. And he IS liked. His readers LOVE it that he includes obscenities in his articles. His attitude toward that sort of thing is the secret to his success. People don’t read him just because he is intelligent. They read him because they LIKE him. And lots of his readers are Buy-and-Holders (how could it be otherwise when honest posting about what the last 33 years of peer-reviewed research says is banned at every large investing site?). So, if Mr. Money Mustache spreads the word about what works in stock investing, he is going to face social disapproval. There’s no getting around it. He doesn’t want to face social disapproval. So he holds back, at least for the time being.

It hurt me more to be rejected by Mr. Money Mustache than it hurt me to be rejected by bloggers who believe in Buy-and-Hold. I believe that both types of bloggers should be permitting honest comments at their sites. But the rejection hurts more when it comes from someone who is not emotionally invested in Buy-and-Hold and who is capable of appreciating the arguments for Valuation-Informed Indexing on an intellectual level. It’s because things seem more hopeless when it happens that way. When I am rejected by a Buy-and-Holder, there is always the hope that that person can be convinced by the arguments and come around in time. When I am rejected by someone who sees the merits of the arguments, the natural question in the back of my mind is — What can I ever hope to do to change this?

I have seen more of that sort of thing in recent years. In the early days, most of the rejections seemed to be the result of intellectual disagreements or misunderstandings. Lots of people really believed in Buy-and-Hold back in 2002. Doubts about the strategy have been growing since the onset of the economic criss in late 2008. So today more of the rejections that I face are rooted in these concerns about social disapproval and fitting in. So the rejections have become harder for me to take than they were in earlier days.

So, yes I have cut back the public work that I do promoting the VII concept. I still do things. I obviously respond to questions and comments from you Goons. I am giving a presentation at FinCon14. I had a blogger write to me last week and request a Guest Blog Entry. I of course supplied that within 24 hours. I work on the book when I have time to do so. I review old articles and run the calculators to sharpen my thinking and my arguments. I keep busy with this stuff.

But I am less inclined to show up at blogs and enter comments pointing out the dangers of Buy-and-Hold. I know that it is important that I do so and I know that I have a responsibility to force myself to do as much of that sort of thing as I am able to do. But it hurts to feel social rejection over and over and over again. So I have cut back. It has become hard for me to face the negative emotions that follow from telling people the truth about stock investing and causing them to feel the pain that comes from seeing that they have made terrible mistakes that have done great harm to their financial futures.

Does that help, Anonymous?

I continue to see great value in the VII concept and I continue to feel a responsibility to spread the word far and wide. But it hurts to do so. And in recent days I have been inclined to give myself a bit more of a pass re doing the hardest parts of the job. I feel that I have done a lot and that I deserve a bit of a break. I expect to get back to that sort of work in days to come. I have hopes that that sort of work will become easier following the next crash. But, yes, for the time-being I have “capitulated” in certain respects. I still believe in the concept as strongly as I ever have. And I of course possess zero willingness to post dishonestly re any aspect of the stock investing experience. But I have taken a lot of blows over the past 12 years and they hurt and I am not today in a mood in which I feel too much excitement over the prospect of taking on too many more. I have pulled back because it hurts too much emotionally to be as out there as I have been for most of the past 12 years.

Teling people the truth about stock investing at a time when prices are high and they don’t want to hear it is hard work. It’s obviously not hard work in a physical sense. And I wouldn’t say that it is all that hard in an intellectual sense either — perhaps it is moderately hard in an intellectual sense. But this is VERY hard work emotionally. It’s draining. It takes a lot out of you. That’s why so few people are willing to push too hard re all this stuff.

I hope that makes at least a small bit of sense to you, Anonymous.

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

Rob

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

We do agree on this, Anonymous.

Most people don’t care about theory. But the EXPERTS care about theory. The experts root their advice in theory. And most people DO care about what the experts say. So in a practical sense most people today are following the Buy-and-Hold theory. They are not dogmatic about it. And they do not know precisely why they are doing what they are doing. They are relying on a belief that the experts are shooting straight with them. They leave it to the experts to worry about theory.

I say that the experts are not shooting straight with them. It’s not that the experts are dishonest by nature. The experts are deceiving THEMSELVES because they have so much riding on the Buy-and-Hold theory; they feel that their entire careers are at stake if Buy-and-Hold is found to be deficient. The experts tell themselves that Buy-and-Hold is good enough and that it is okay not to trouble their clients and readers with discussions of the implications of Shiller’s findings. The ordinary investors don’t even know that there is an issue. They don’t look into things carefully enough to discover this. So, when I put forward views that are very much at odds with what the experts say, the ordinary investors see that what I am saying makes perfect sense but presume that there must be something wrong with what I am saying because if I were right the experts would be saying the same thing.

This is why I am always talking about the importance of Bogle giving an “I Was Wrong” speech. We need a major event that is widely publicized to turn things around. If Bogle gave such a speech and it were written up in all the major papers, all of the experts from that point forward would feel comfortable giving the Shiller take on things along with the Fama take on things. As more and more people came to understand the Shiller take, hundreds of blogs would pick up on these questions and we would see the launching of a national debate. We need to see a national debate re this stuff very, very badly!

I feel that you are suggesting a non-dogmatic approach to things. I can live with a non-dogmatic approach. But I am not clear re how what you are suggesting would play out when it comes time for me to compose posts.

Say that I am posting at the Bogleheads Forum. Someone comes on and says “I am about to retire and need to decide how much I am going to withdrawal each year.” Someone else posts a link to FIRECalc. What do it do?

Do I post a link to The Retirement Risk Evaluator?

How does Mel Lindauer respond when I do that?

Am I subjected to The Treatment?

Or does he let it pass out of deference to this new non-dogmatic approach?

I don’t feel any need to say “Buy-and-Hold is wrong” so long as there are no Buy-and-Holders saying “Valuation-Informed Indexing is wrong.”

If you are saying that we ALL should be non-dogmatic, I am cool with the idea. But Valuation-Informed Indexing cannot grow if, every time a VII idea is put forward, it is smashed down by people who claim that Buy-and-Hold is Scientific Truth. I need protection from that sort of thing. The protection that I have relied on in the past is the 33 years of peer-reviewed research supporting the VII strategy (and discrediting the earlier research that was thought by many to support the BH strategy). If we go the route you propose, do you intend to jump in when Buy-and-Holders say that their approach is Science and let them know that the majority of the board is non-dogmatic and that it is disrespectful to them to say that kind of thing? If not, how do you propose that I respond, given that I believe in Valuation-Informed Indexing and want to persuade people of its merits while also wanting to always be 100 percent respectful of the views of other community members?

Rob

 

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

Would you agree that your inital response in this thread can be reduced to the following dilema:

Either nearly every finance author, lecturer, blogger, advisor, and commenter on the planet is purposely corrupt and involved in a single-minded tight and as-yet completely unbreached unreportred and ongoing conspiracy against the truth that caused a major economic meltdown…

OR…..

a single unemployed layman blogger in Virginia has a profound [willful?] misunderstanding of mathematics and investing principles.

What really happened is that Shiller’s findings came as a shock. He turned what we believe about how stock investing works on its head. It takes some time for people to process such a fundamental change in our understanding of so important a matter. I don’t think it would have been too strange for it to have taken five or ten years for Valuation-Informed Indexing to catch on. That would have taken us to 1986 or 1991.

By that time, a huge bull market had been established. People did not want to hear that Buy-and-Hold does not work. They were getting daily feedback that it was working very well. And it wasn’t until late 2008 that the bull market ended in the popular perception. So it has only been for five years that most people have been open to questioning of Buy-and-Hold. And we HAVE seeing the door begin to open during that time. We are not yet where we need to be. But we are making slow but steady progress.

Another big factor here is that investing is too important to get wrong. Intuitively, you would think that that would make people super cautious about making dogmatic claims. The reality is that it has worked the other way around. Because investing is so important, experts feel that they need to demonstrate confidence in what they say. And the Buy-and-Hold and Valuation-Informed Indexing models often lead to OPPOSITE strategic recommendations. Experts feel that it would sound funny to say: “I believe that you should be at an 80 percent stock allocation but I also want you to know that there are good and smart people in this field who follow research that indicates that 20 percent stocks is a much better choice.”

That’s what people should be saying. There are two models for understanding how stock investing works and anyone who is educated re the research has a responsibility to let his clients or readers know that there is another school of thought that leads one to very, very different conclusions. But the experts feel that their clients and readers won’t think of them as experts unless they say something more definitive than “80 percent stocks might be good but 20 percent stocks might be good too.” The REALITY is that we are as a society today at a primitive level of understanding of how stock investing works. But the experts have to give advice on how to invest TODAY — they cannot tell their clients and readers to wait 20 years until we figure out whether it is Fama or Shiller who got things right. So they IGNORE Shiller. They act like he doesn’t exist. It’s a terribly irresponsible thing to do. But when you think this through carefully you can begin to see why things happened as they did.

It is certainly not the case that everyone in the field is purposely corrupt. That is OBVIOUSLY not true. Even people like Bogle and Bernstein and Swedroe include LOTS of honest and accurate comments in their books and articles and speeches. They even include comments that argue against their Buy-and-Hold recommendations. I learned about the errors in the Old School safe-withdrawal-rate studies by reading Bogle’s book. If he were 100 percent corrupt, he would not include that sort of language in his book. It would make no sense for an entirely corrupt person to do so.

What is going on is that we are living through a state of transition from Buy-and-Hold to Valuation-Informed Indexing. Bogle (and all the others) understands that there are problems with Buy-and-Hold. He is DEFENSIVE about the many obvious weak points in his model. But he has a lot invested in Buy-and-Hold and he once truly believed in it. So he is highly reluctant to give up on the model. So he downplays the weaknesses. Not only in his public comments. My sense is that he does this even in his own mind. He has convinced himself that Buy-and-Hold can at least kinda sorta work. He has convinced himself that he is not doing anything too horrible in failing to explore the challenges that have been presented to his model.

There is now a mountain of evidence that he IS doing something truly horrible. The relentless promotion of Buy-and-Hold strategies was the primary cause of the economic crisis. Bogle has caused tens of thousands of businesses to fail. He has caused millions of people to lose their jobs. He has caused millions of retirements to fail. He has even caused a significant number of people on both the left (The Occupy Wall Street Movement) and the right (The Tea Party Movement) of the political spectrum to begin to lose confidence in our system of government. That’s very bad stuff. But it does NOT amount to financial fraud so long as Bogle (or any of the others) is suffering from cognitive dissonance, a condition that afflicts all of us humans from time to time.

Death threats? Demands for unjustified board bannings? Tens of thousands of acts of defamation? Threats to get academic researchers fired from their jobs? We cannot excuse those sorts of things with stories about people suffering from cognitive dissonance. There are reasons why we have rules and laws protecting us from those sorts of behaviors. Those sorts of behaviors make our system unworkable. We all are capable of making mistakes and those sorts of behaviors make it impossible for us to discover our mistakes through civil and reasoned discussion. Those who engage in those sorts of behaviors or who see others engage in those sorts of behaviors and fail to take prompt action are guilty of financial fraud, a felony under the laws of the United States. Of that there can be no doubt whatsoever.

And there can be no doubt whatsoever that it is no act of kindness to cover up such acts of financial fraud or to fail to work hard to have them discovered and prosecuted. When we tolerate financial fraud, we insure that additional acts of financial fraud will take place by people who feel threatened by the findings of the last 33 years of peer-reviewed academic research in this field. The people who fail to speak up are insuring that more people will go to prison and that the prison sentences will be longer.

We are the luckiest generation of investors ever to talk Planet Earth. Once we make it to the other side, we will all know how to obtain far higher returns from stocks while taking on dramatically reduced risk. That’s investor heaven! It is because the advance we have achieved (at least intellectually!) is so great that as a society we have been slow to make the transition. We are naturally skeptical of such huge changes and so it is proper that we have proceeded cautiously. It is of course NOT proper that some of us have engaged in acts of financial fraud to block the change from taking place.

We are not a bad people. But we have made some bad choices that have caused huge amounts of human misery. We need to turn things around. We all should be doing everything in our power to insure that we do so by the close of business tomorrow.

That’s my sincere take re this terribly important matter, in any event.

Rob

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

“We need to punish…” THERE’S your problem, right there, slick. I don’t say that you are entirely wrong about this particular point, Anonymous. The Buy-and-Holders see it as “unfair” that I talk about the 32 years of peer-reviewed academic research that shows how dangerous their “strategy” is. It’s not really me that is punishing them. It is the academic research that is punishing them. I am just the mild-mannered reporter that points to what the academic research says. The Buy-and-Holders were pioneers. They were the first ones that said that investing strategies should be rooted in peer-reviewed academic research. I love them for that. It annoyed me when I read stuff about investing from four different “experts” and heard four different ideas about how to proceed. If the experts don’t agree on even the basics, they are not true experts. If they can’t agree on the basics, there is no legitimate body of knowledge to which they are making reference. If there is no legitimate body of knowledge to which the experts in a field make reference, knowledge in the field is not sufficiently developed for us to say that it is possible to come to possess a true expertise in that field. The Buy-and-Holders feel burned. They want to use the fact that they root their strategies in peer-reviewed research to shut everybody else down. But, since they made a mistake about what the research says, they have ended up shutting themselves down. This is what makes them angry. This is what makes them feel punished. This is what makes them hate me. I am 100 percent in tune with the ORIGINAL Buy-and-Hold mission. I believe in following what the research says. The nature of research-based strategies is that they must change when the things taught by the research change. All of us who believe in research-based strategies are essentially slaves to the research-based findings. We cannot just reject those findings because we don’t like them. We must obey the lessons of the research or stop putting ourselves forward as advocates of research-based strategies. It is not my intent to punish the Buy-and-Holders. It is my intent to honor the research. But, yes, the Buy-and-Holders feel it as a punishment because they do not want to be bound by the findings of the past 32 years and I just refuse to stop making reference to them. I like the Buy-and-Holders. I see my work as an extension of their work, a reform of their work, an improvement on their work, a correction of their work. I respect the work they did and I honor them in all my writings and I like them as people and I am grateful for their many powerful insights. There would be no Valuation-Informed Indexing today if we had not had Buy-and-Hold yesterday. But I think that my Buy-and-Hold friends are making a terrible mistake by being unwilling to correct their mistakes. They are destroying the lives of millions of middle-class people and I do not believe that that was at all their intent when they started out. So I feel bound to point out those mistakes and to do all in my power to bring them around. I like the Buy-and-Holders. It is BECAUSE I like them that I “punish” them by talking about what the research really says. In the long term, they won’t see it as a punishment to learn how stock investing really works. But in the short term they do indeed see it that way because of a false pride. The Buy-and-Holders should take pride in their genuine achievements while correcting the things they got wrong. By causing financial devastation to millions, they are running the risk that in days to come many will not even give them credit for the many powerful insights they really did develop and offer to us all. I see myself as the greatest friend the Buy-and-Holders have in this world. But you are correct that there are a good number of Buy-and-Holders who view any reference to the last 32 years of peer-reviewed academic research in this field as a terrible punishment. Whachagondo? Rob

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

If the intelligent people don’t agree with you, then that means you will only have stupid people agreeing with you.

The intelligent people DO agree with me, Deleted.

I didn’t discover the errors in the Old School safe withdrawal rate studies by myself, Deleted. I suspected on my own that there was something missing in those studies. But I wasn’t able to put my finger on what it was until I read Jack Bogle’s book. Bogle said in his book that Reversion to the Mean is an “Iron Law” of stock investing. If Reversion to the Mean is an Iron Law, there is obviously zero chance that the safe withdrawal rate could be the same number at all valuation levels. Hence, my May 13, 2002, post asking whether we had gotten this whole SWR thing wrong.

It’s not just Jack Bogle.

Bill Bernstein knows that Buy-and-Hold is a big pile of smelly garbage too.

So does Scott Burns.

So does Larry Swedroe.

So does Michael Kitces.

So does Wade Pfau.

So does Warren Buffett.

So does Robert Shiller.

So do lots and lots and lots of others.

There is no lack of intellectual knowledge in this field.

Our problem is a lack of courage.

There’s tons of money to be made pushing Get Rich Quick garbage. And Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.

What we have to decide is — Is making a smelly buck in the short-term the only thing that matters?

Or does personal integrity have some value too? Does learning new things about the subject matter have some value? Does being straight with your readers and clients have some value? Does recovering from the economic crisis have some value? Does entering the greatest period of economic growth in U.S. history have some value? Does keeping your friends out of prison have some value?

I have zero problem with the goal of making a buck, Deleted. I expect to bring 500 million of the little green guys into my life on the day my settlement offer is accepted.

But I don’t buy the idea that making a quick, smelly buck is the ONLY thing that matters.

Honesty matters. Yes, even in the investing field. Yes, I really do believe that.

And, yes, I really do believe that the Wall Street Con Men will all feel 50 times better about themselves once they feel free to share their true beliefs about how stock investing works.

Get Rich Quick is the past. The first true research-supported strategy is the future.

I am sure.

Take care, man.

Rob the Sure