A Rich Life

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

“All of the Pre-Shiller Work and All of the Post-Shiller Work That Ignores Shiller’s Findings Is Discredited. The People Who Have Done Discredited Work Are More Concerned With Their Own Careers Than They Are With What Happens to Investors.”

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

it’s such a hoot that an old book by Robert Shiller constitutes the totality of academic research on finance on that strange little planet known as HocoWorld.
Shiller’s work discredited what came before it.Until something discredits Shiller’s work, his model remains the state-of-the-art model.

In 32 years, no one has found anything wrong with Shiller’s work.

His work IS something close to the totality of work in this field.

THe work that came before Shiller has been discredited. Work that is rooted in Shiller’s work supplements Shiller’s work. But there is little of that. Russell’s work supplements Shiller. Pfau’s work supplement Shiller. Arnott’s work supplements Shiller. There is not much else.

All of the pre-Shiller work and all of the post-Shiller work that ignores Shiller’s findings is discredited. That is the cause of most of the friction. The people who have done discredited work don’t want to acknowledge it. They are more concerned with their own careers than they are with what happens to the investors they should be serving.

But it is no kindness to these people for us to let them go on producing work that has no value. They are wasting time and resources. Once we all acknowledge that Shiller “revolutionized” (his word) the field, we all can get back to doing useful and valuable and constructive and life-affirming work.

Shiller’s work discredited Fama’s work (in part). The part that was discredited is no longer science. Buy-and-Hold was rooted in the discredited work. Buy-and-Hold once was science but it is not that today.

Shiller’s findings did not supplement Fama’s findings. They discredited them (in part). Shiller and Fama cannot both be right. One is right and one is wrong. There is no evidence supporting Fama. Fama’s interpretation of the data was in error. ALL of the data supports Shiller. None of the data supports Fama. Buy-and-Hold has been intellectually dead for 32 years now. All of the fuss is just about when we will get around to burying the corpse.

The reason why the Buy-and-Holders fight so hard is that they have no case. If they had a case, people could disagree civilly. But when all the evidence is on one side, the only possibilities are to move on to the new model (the life-affirming choice) or to employ abusive tactics to keep investors from learning that Buy-and-Hold has been intellectually dead for 32 years now.

I didn’t cause the problem. The Buy-and-Holders caused the problem by failing to update their model to reflect Shiller’s revolutionary findings.

Rob

“Did Cooley Include In His Research a Discussion of WHY He Did Not Include a Valuation Adjustment? If He Had Some Intellectual Problem With Shiller’s Findings, He Would Have Discussed It. He Was in Denial. He Was in Emotional Pain. He Was Suffering From Cognitive Dissonance.”

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

Was Cooly (and the other Trinity contributors) ‘addicted’ to buy-n-hold when they undertook their original research? Really?

Thank you for asking an intelligent question, Banned.

At the time Cooley did his SWR study, Shiller’s revolutionary finding that valuations affect long-term returns had already been public knowledge for a good number of years. So, yes, the fact that Cooley did not appreciate the need to include a valuation adjustment shows that he was at the bare minimum emotionally resistant to the new model even at that time.

Did Cooley include in his research a discussion of WHY he did not include a valuation adjustment? If he had some intellectual problem with Shiller’s findings, he would have discussed why he did not see a need to design a methodology that reflected those findings. He didn’t even discuss the issue. He was in denial. He was in emotional pain. He was suffering from cognitive dissonance.

All that I am saying is that he was HUMAN.

Just like Bogle. Just like Bernstein. Just like Swedroe. Just like Burns. Just like Pfau. Just like Bennett. Just like Russell. Just like Shiller. Heaven help us all, just like Lindauer and Greaney.

Down here on Planet Earth, it’s just us humans, Banned. We are going to need to find a way to work together and make the best of it. We WISH we would wake up one morning and know it all. Morning after morning after morning, it never happens. You accept that or you end up paying a big price for not accepting it.

Here’s a woman who gets it exactly right:

http://arichlife.passionsaving.com/2013/02/20/carol-osler-program-director-for-the-lemberg-masters-in-international-economics-and-finance-at-the-brandeis-international-business-school-i-certainly-have-seen-the-academic-profession-in-action-sq/

Carol Osler tells me:

“I certainly have seen the academic profession in action squelching unfashionable ideas and have often been on the wrong side of it. While there’s no magic solution, especially in the short run for individuals with jobs at stake, I sometimes find it calming to see that both philosophy and science are on our side about academics sometimes being profoundly unreasonable. For philosophy, Kuhn was a good start for me. He shows how most pathbreaking scientific ideas are rejected at first, usually for decades. Popper was also helpful. He has very harsh words for scientists who worship math, for example. For science, I am just now reading Jonathan Haist’s book on the psychological basis of morality, The Righteous Mind (2011). He shows, for example, why most ‘scientists’ behave like Kuhn documented, and support the group’s big ideas even in the face of strong evidence to the contrary.”

That’s the story here, Banned. We are living through a revolution in our understanding of how stock investing works. It’s not a bad thing. It is a good thing. We are on the threshold of the greatest economic boom in our history. But to get there we have to survive all the bullets that fly during a revolution. I didn’t ask to be fated to live through a revolution. Neither did you. But here we are. We can make the best of it or we can destroy ourselves.

We will get to the other side of The Big Black Wall or we will all perish in the Second Great Depression. Those are the options available to us. I know which path I prefer.

Getting to the other side of The Big Black Wall means prison sentences for some of us for things that have happened during the bloodiest part of the revolution. That breaks my heart. That makes me want to cry. You sure are not going to be seeing me doing anything to cause those prison sentences to be extended. I want to see the prison sentences shortened. That goal is foremost in my mind every time I push the “Send” button on a post. If I remain true to myself, it always will be from this point forward.

We are the luckiest generation of investors who ever walked the face of Planet Earth because we are the first generation of investors born at a time where we can take advantage of The Shiller Revolution. Some of us have elected to destroy ourselves in a vain effort to keep The History Train from moving forward. That is a foolish idea. I have tried to persuade my friends that it is a mistake to get one’s self tied up in such foolishness.

I am sure.

Rob

“Jack Bogle Has Done Wrong Things. So Have Larry Swedroe, Rick Ferri and Scott Burns. Jack and Larry and Rick and Scott Have Also Done Good Things.”

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

“Also, I don’t Jack, Larry, Rick or Scott would consider you a friend.

You’re wrong, Pink.

They don’t want to go to prison. So, yes, they are concerned about my exposure of the 11-year cover-up.

But that is only one part of what these fellows are.

Jack loved the idea of helping millions of middle-class investors when he started out. His amazing accomplishments testify to this reality. The part of him that wants to help investors is still present within him on some level of consciousness. That part of Jack Bogle LOVES the idea of coming clean on safe withdrawal rates and scores of other critically important investment-related topics. That part of Jack Bogle recognizes Rob Bennett as his best friend in the world. That part of Jack Bogle CANNOT WAIT to put all the ugliness associated with his “support” for John Greaeny and Mel Linduaer behind him and to return to being a ETHICAL and HONEST stock advisor.

The same is obviously true of all the others. There are REASONS why we have a ban on the tactics employed by those posting in “defense” of Lindauer and Greaney at EVERY investing board and blog on the internet. It is because those tactics are sub-human and we all want to protect our humanity. Bogle didn’t agree to follow the published rules of the Morningstar site just because he had to do so to be permitted to post there. He pressed the “I Agree” button because he appreciates the need for those rules. Bogle is SICKENED by the tactics employed by you Goons. He is just too afraid of what you will do to him if he says so to speak up at the moment. I intend to take care of that problem.

Bogle has done wrong things. So have all the others you mention.

Bogle and all the others have also all done good things.

Just because they betray the good of themselves from time to time because of their fear of you Goons does not mean that they are no longer “friends” with their good sides. I will be enjoying a good relationship with all these people for many, many years to come. Their pretend friendship with you Goons will come to a total and complete stop on the day your prison sentences are announced. Pretend friendships don’t stand the test of time, Pink.

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

Rob

“Most of the People In This Field Have Spent Years Learning What Is In the Textbooks. The Stuff In the Textbooks Is Wrong. That’s Always the Case When There Is a ‘Revolutionary’ Advance. So Intelligence and Experience Can Actually Be a Drawback. The More Study a Person Has Directed to the Old Model, the Less Capable He Is of Understand Why It Is Wrong.”

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

There are extremely smart people in the investment industry and the ability to invest successfully in order to maximize returns would compel those extremely smart people to follow the money. If you really had discovered something so revolutionary, wouldn’t you have a strong vocal following by now?

Yes and no, Questions.

The people who work in this field have high I.Q.s. No dispute there.

But Shiller’s findings are truly “revolutionary” (that’s the word used in the subtitle of his book).

Most of the people in this field have spent years learning what is in the textbooks. The stuff in the textbooks is wrong. That’s always the case when there is a “revolutionary” advance.

So intelligence and experience can actually be a drawback here. The more study a person has directed to the old model, the less capable he is of understanding the case for why it is wrong.

And the more of a motivation he has to convince himself that the new model is not a huge advance.

Please read the quote from Machiavelli that I put in the “People Are Talking” section of the site. He points out that it is very hard for new systems to gain a foothold. That’s because there are lots of people with an intense desire to keep the old system going (they built their careers around their knowledge of the now-discredited, old system) and not too many with an intense desire to push the new system (it’s hard to make any money promoting the new system until there are a good number of adherents to it).

Buy-and-Holders are today using their intelligence and industry to stop progress. They have become the thing they once opposed. People tried to stop Bogle once upon a time just as Bogle today tries to stop me.

It won’t work. It cannot work. The advance is too big.

The smart thing for someone like Bogle to do is to abandon Buy-and-Hold and promote Valuation-Informed Indexing. No one cares that he made a mistake. No one. What people want is investing advice that works. Bogle played as big a role as anyone in building the Valuation-Informed Indexing Model. Once he endorses it, he gets credit for his huge contributions.

And Valuation-Informed Indexing isn’t a dead thing, like Buy-and-Hold. Valuation-Informed Indexing is the future.

Once Bogle realizes that and says so publicly, lots and lots of other smart people are going to join the program. There’s an old saying that “the harder they come, the harder they fall.” It has been very, very hard to knock down Buy-and-Hold. But once it falls, it falls entirely and completely. The transition will be short because there is now a mountain of material showing the dangers of Buy-and-Hold and the wonders of Valuation-Informed Indexing.

My guess is that it will be the next price crash that will start the collapse.

Rob

Rob Bennett’s Response to a Goon Claim that “We See Time and Again by Countless Studies That Market Timing Has Been a Failure” — “Please Show Me the URL of ONE.”

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

We see time and again by countless studies that market timing has been a failure.

Please show me the URL of one.

Wade has a Ph.D. in Economics from Princeton. He spent a good deal of time trying to find ONE legitimate study showing that long-term timing is not required. He found nothing.

This so shocked him that he did not trust his own finding. He went to the Bogleheads Forum and asked if anyone there was aware of a single study showing that there is no need to engage in long-term timing. Not one member of that community had ever heard of a single such study.

Not John Bogle.

Not Bill Bernstein.

Not Larry Swedroe.

Not RIck Ferri.

Not anyone.

Rob, the Fellow Who Sees a Subtle Difference Between There Being “Countless” Studies Showing Something and There Being “Zero” Studies Showing That Something

“I’ve Spoken to Hundreds of Experts in This Field. Nearly Every One Tells the Same Basic Story. In Private, They Say They LOVE, LOVE, LOVE the Idea of Being Able to Tell Their Clients What They Truly Believe About Stock Investing. In Public, They Want No Part of It.”

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Set forth below is the text of a comment that I recently put to a discussion at this site’s blog:

I’ve spoken to hundreds of experts in this field, Deleted. Nearly every one tells me the same basic story.

In private, they say that they LOVE, LOVE, LOVE the idea of being able to tell their clients what they truly believe about stock investing.

In public, they want no part of it. They have seen the millions of acts of intimidation that the Buy-and-Hold Mafia have employed to keep investors from learning what the academic research says and they want no part of it. (I have of course not personally seen millions of acts of intimidation but I have seen tens of thousands just in a few small internet communities — the total number of acts of intimidation that have been employed since Shiller published his research in 1981 is obviously in the millions).

Once Bogle gives his “I Was Wrong” speech and it is is written up on the front page of the New York Times, there will obviously be no problem. No one is going to be afraid of being sued or of having his career destroyed once the big newspapers have written about the decades-long Campaign of Terror against those who prefer research-based strategies over the pure Get Rich Quick approach and once they have seen that the vast majority of us oppose these ugly tactics in no uncertain terms.

We are in a Catch-22 today, Deleted. 90 percent of us want to hear the truth about stock investing. But the 10 percent of you Goons possess a power far greater than your numbers should provide you because you are utterly ruthless in the tactics you employ. Bogle is obviously afraid of you. Benrstein is obviously afraid of you. Burns is obviously afraid of you. Pfau is obviously afraid of you.

My view is that any “expert” who fails to say publicly what he truly believe about the subject matter in which he possesses expertise because he is afraid of what Goons will do to him if he does is not a true expert. I feel for these people. But, if they do not possess the courage to stand up to you, they need to find a new way of making a living. Pretending that there is some mystical blue pixie dust that is going to cause the stock market to start behaving in a manner in which never before in history it has behaved is just not cutting the mustard. True experts tell the truth REGARDLESS of how much it may hurt the feelings of the social misfits among us.

The investing field is 100 percent corrupt today. We cannot trust anything that anyone says until you Goons have been put in prison and as a society we have thereby sent the message that the same standards of ethics that already apply in every other field of human endeavor are going to be made applicable in the investing advice field as well.

We don’t need surveys. We already have thousands of researchers and economists and academics and journalists and bloggers and investing experts who know what the last 32 years of academic research says about the subject of stock investing. We need prison sentences for those who employ death threats and board bannings and defamation and threats to get academic researchers fired from their jobs to keep the word from getting out. Prison sentences for those who have violated our laws send a very different message than surveys. It is prison sentences we need for the millions who have expressed a desire to learn the realities to feel safe exploring and discussing these issues in a serious way.

I wish you all good things, my soon-to-be-prison-dwelling friend.

Rob

“The ‘Experts’ Won’t Tell You This. Most of the ‘Experts’ in This Field Make Money Only When People Buy Stocks. So They Are Compromised. You Need to Become Personally Familiar With What the Academic Research Really Says, Not Just What the People Quoted as Experts in This Field SAY That It Says.”

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Set forth below is the text of an answer that I recently posted to a question (“When Will the Stock Market Crash Again?”) at the Quora site:

There are two popular schools of thought re market timing. One is that it is impossible to time the market effectively and a waste of effort to try. The other is that knowing when crashes are coming is so valuable that you just have to give the objective of predicting them your best possible shot.

I hold a third view, a view which I believe is strongly supported by the research of Yale University Economics Professor Robert Shiller and research (including one paper that I did most of the work on myself!) done over the past 32 years (and largely ignored so far!). That view holds that short-term timing (predicting when crashes will come with precision) really is impossible but that predicting in a general way when they will come (long-term timing) is highly doable and absolutely required for those seeking to hold any realistic hope of long-term investing success.

Shiller’s model uses valuations to make long-term predictions. Once prices go insanely high, we ALWAYS experience a wipe-out. There has never in 140 years of stock market history ever been an exception. But we CANNOT say with precision when the wipeout will come, only that it is on its way.

There is a wipe-out on its way today, according to the Shiller model. Thus, I think it makes sense to go with a low stock allocation today.

Now —

We may see stock prices double over the next year. If we see that, there are people who will complain that I was “wrong” in my advice.

I don’t see it that way. The way I look at it is that the RISK of a crash is high this year. Thus, we all should be going with low stock allocations. It doesn’t matter whether stocks actually crash this year or not. The risk is there. That’s what matters.

Those who stay in stocks and enjoy another run-up in prices will NOT get to keep the money. They will lose all those gains plus a lot more in the crash that will follow next year or the year after that. So what good do those gains do them? I invest for the long-term. I want gains I can keep. Investors have never earned permanent gains from stock purchases made when stock were selling at the sort of prices at which they are selling today.

The losses you will see if stocks continue to perform in the future anything at all as they have always performed in the past will be devastating. It is hard for people to get their heads around how much one wipeout in a lifetime can hold you back. You lose not only the dollar value taken from your portfolio, you also lose decades of compounding returns on those dollars. Stay heavily in stocks at a time like today and you could easily set your retirement back 10 years, according to the last 30 years of academic research.

The “experts” won’t tell you this. Most of the “experts” in this field make money only when people buy stocks. So they are compromised. You need to become personally familiar with what the academic research really says, not just what the people quoted as experts in this field SAY that it says. These are very, very, very different things, in my experience. The conventional wisdom in this field is dangerous stuff.

Rob

“There Is No Such Thing as an ‘Expert’ in a Field in Which We Are as a Society Only Beginning to Come to Terms with the Most Fundamental Questions. When Buy-and-Hold Was Developed, There Were Smart People Who Thought That It Was Not Necessary to Change Your Allocation in Response to Valuation Shifts. They Didn’t Know.”

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Set forth below is the text of a comment that I recently put to this site’s blog:

Rob said: “Again, these are merely the sincere views of a non-expert who has spent a lot of time trying to understand conflicts and weaknesses in the conventional understanding of stock investing. ” But Rob, you said you are more of an expert than Jack Bogle, William Bernstein, etc.

Both things are so, Pink.

I never went to Investing School. I never managed a big fund. I am no investing expert.

But, yes, I am 11 years ahead of Jack Bogle and Bill Bernstein and Larry Swedroe and all the other Buy-and-Holders.

They aren’t experts either, Pink.

There’s no such thing as an “expert” in a field in which we are as a society only beginning to come to terms with the most fundamental questions. Do valuations affect long-term returns or do they not? That’s the ABCs. When Buy-and-Hold was developed there were smart people who thought that it wasn’t necessary to change your allocation in response to valuation shifts. They didn’t know. If you don’t know the ABCs, you are obviously not an expert.

Now they know.

Now we all know. Now that Shiller has published his research and now that Wade and I have published the research that shows clearly the huge practical implications of Shiller’s revolutionary theoretical findings, we all know. Or at least we all should know.

But Bogle and Bernstein and Swedroe cannot today bear to admit that they don’t know it all. So they play stupid games. And thereby get themselves deeper and deeper into the mess that they created by pretending to know things that they in reality did not know.

I am not an expert. But I am 11 years ahead of those who haven’t even yet acknowledged that they were wrong about safe withdrawal rates and why.

I gave up on Buy-and-Hold on the evening of August 27, 2002, when John Greaney threatened to kill my wife and children if I ever dared to “cross” him again by putting up another honest post on safe withdrawal rates. I never looked back.

When did you come to see that Buy-and-Hold is a big pile of smelly garbage, Pink?

If you haven’t done that yet, why haven’t you? What do you need to see?

What is Bogle waiting for? What is Bernstein waiting for? What is Swedroe waiting for?

It’s one thing not to be an expert. It’s not possible for any of the humans to be true investing experts today. Our knowledge of the realities simply is not yet sufficiently advanced for anyone to claim that title.

It’s something else to be corrupt. If you don’t speak out against death threats and board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs, you are acorrupt non-expert.

Is that not so, Pink?

Rob

“What Do You Want in an Investment Advisor? Do You Want Someone Who Whispers Pretty Lies in Your Ear?”

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Set forth below are the words of a comment that I recently put to the Goon Central board:

I now remember why he pissed everyone off.

I piss lots of people off, Cut-Throat. It’s an established fact.

What do you want in an investment advisor? Do you want someone who whispers pretty lies in your ear? Or do you want someone who tells you the way it really is and helps you to retire many years sooner as a result?

You won’t have a hard time finding someone who will be only too happy to whisper pretty lies in your ear for a fee. This kind is all over the place in the Buy-and-Hold years.

I ain’t that kind. I couldn’t live with myself if I played it that way. I sweated blood putting together my Retire Early stash. If I thought that someone was whispering pretty lies in my ear, I would be mighty pissed off at that person. I don’t do to others what I wouldn’t want someone else doing to me.

I offer no apologies for telling it straight, with no chaser.

I don’t wake up in the morning thinking “Gee, who can I piss off today?” I’m always polite. I’m always warm. I’m always friendly.

But when it comes to reporting numerical calculations, I play it straight. I’ve never even given two seconds of thought to playing it any other way.

If you can’t take it, you have every right in the world to refrain from reading my posts. You won’t hurt my feelings.

It’s when you cross lines that you are by law not permitted to cross that you find yourself being named in lawsuits. That’s not personal. That’s business. I know from thousands of people who have told me so in passionate words of gratitude that my straight-talking approach suits lots of people just fine. So, if you cannot take straight talk and you do not want to add to the damages you are already on the hook for, just stay out of my way and we will get along just fine.

I’m friendly. I’m warm. I can do friendly and warm.

I cannot do dishonest. Not with the numbers people use to plan their retirements. No matter how much it hurts some people to hear the real numbers (and it really does hurt people, this much is very clear to me today).

My take is that it is the people who have been feeding you a line of b.s. for years that you should be pissed at, not me. But the reality is of course that you will be pissed at whoever it is that you elect to be pissed at. What I can say re me is that I do not do this with the aim of pissing you off. But, if reporting the numbers accurately pisses you off, then so be it. Getting the numbers right trumps your precious little feelings, in my book (I don’t mean that sarcastically, I am trying to put forward myzzz sincerezzz take here and it is necessary to use some language that might sound strong to you to get the point across).

This stuff matters, man. Any hurt you feel hearing the numbers from me is nothing compared to what you are going to feel when you see numbers you didn’t ever expect to see at the bottom of the last page of your portfolio statement.

Rob

We Need Diversified Incentives for Stock Sellers

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Set forth below is the text of a thread-starter that I posted to the Goon Central board:

Yip made a comment about having a “diversified” portfolio. That certainly sounds like a good idea. Diversification reduces risk.The trouble is that there is a huge incentives for those in The Stock-Selling Industry to offer non-diversified advice. If commissions were the same for IBonds and TIPS as they are for stocks, the “experts” in this field would tell us to buy stocks only when they are selling at reasonable prices. So long as the incentives are not diversified, the advice is not diversified. It is all tilted in favor of stocks. That leads in time to insane overvaluation and then buying stocks is like buying lottery tickets.

We also need diversified posting. If we heard all points of view at all boards and blogs, we would collectively be able to make diversified choices. When most of us become addicted to GRQ, most of us become hostile to diversified discussion. So we hear one side over and over and over again. Again, stocks become lottery tickets. And lottery tickets do not have a place in a truly diversified portfolio.

Valuation-Informed Indexing is diversified OVER TIME. I will be able to buy a huge amount of stocks when they are priced reasonably because of the losses I avoided by refusing to go with a heavy lottery ticket allocation. By owning more stocks when stocks are priced well and less stocks when stocks are priced poorly, I am able to own the right amount of stock over time while not taking on the insane amount of risk that Buy-and-Holders take on when they go with a high stock allocation when they are priced to be lottery tickets.

In an ideal world, we could all own diversified portfolios AT ALL TIMES, not just over time. For that to happen, we need to permit diversified posting. No investor wants to destroy his hopes for retirement. If we permit investors to learn what the research says, they will follow the same common-sense approach to buying stocks that they employ to make all other purchases, and stocks will always remain available at prices at which going with a diversified portfolio makes all the sense in the world.

Diversification makes sense. It is the Ban on Honest Posting that does not make sense. The Ban on Honestzzz Posting causes stocks to be priced at levels at which they become lottery tickets and lottery tickets should not be part of a diversified portfolio. So long as the Ban on Honest Posting remains in place, the best that rationalinvestors can do is to seek to be diversified over time.

My sincere take.

Rob