A Rich Life

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

Investing: The New Rules #9 — Stocks Are Not Worth Buying Today

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I recently posted Entry #9 for my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Stocks Are Not Worth Buying Today.

Juicy Excerpt: There’s no guaranty that history will repeat exactly. But there’s good reason for anticipating that it will at least rhyme. It’s not an accident that times of insanely high prices have always brought on times of insanely low prices. Insanely high prices cause millions to believe that they possess far more in the way of real wealth than what they really do possess. That belief causes millions of bad financial decisions; bull markets make people spend more than they can afford to spend. When people realize that they have been making poor financial decisions for years or for decades, they panic. Panic causes insanely low stock prices.

“Palin Followers Are Sickened By the Smears — The Same Thing Goes on in the Investing Field”

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Set forth below is the text of Comment #18 to a blog entry (by Doug Brady) at the www.Conservatives4Palin.com site reporting on my column arguing that Governor Palin is the political figure most likely to come out in favor of permitting honest posting on the Big Fail of the Buy-and-Hold Model on the internet.

Doug:

Gov. Palin cannot do it on her lonesome. But she can provide an element that is absolutely needed that no one else can today provide — leadership. There is a vast wasteland in the leadership department today. That’s the true cause of the economic crisis. Palin has the influence and heart and courage and intelligence needed to pull people together, help them learn the true nature of the problem, and then overcome it. She is the only one I know of who can play this role effectively today.

All Palin followers are sickened by the smear campaigns that were used to try to drive her out of politics. People need to stop for a moment and consider — Is this only a problem in the politics field? Or are there similar things going on in other fields? I am here to tell you that the same thing is going on in the investing field. Lots of people know far better ways to invest than Buy-and-Hold and have been trying to tell people about them for 30 years. They are silenced by the “experts” who just happen to be bringing in millions per year promoting Buy-and-Hold. It’s a shocking and upsetting story. But all that I say here can be verified with internet links.

What happened is that the academics once really believed that Buy-and-Hold made sense. We learned otherwise as the result of research that was done in 1981. A decision was made to keep that covered up. Promotion of Buy-and-Hold led to U.S. stocks being collectively overvalued by $12 trillion in January 2000. Stocks always return to fair value; there has never been one exception in the historical record. So everyone who follows investing events closely knew in 2000 that $12 trillion of wealth was going to disappear from the U.S. economy over the course of the next 10 years or so. And there are people who express surprise that we are suffering through an economic crisis today? No economy can lose $12 trillion of wealth without collapsing.

Palin cannot get the $12 trillion back. What she can do is to tell people why they lost so much of their retirement money in the first place. And she can make it impossible for the “experts” to continue to play their games. We know now about simple strategies that would permit people to invest in stocks with far less risk and to receive far higher long-term returns. To tell people about these strategies, we need to overcome the opposition of the Good Old Boy “experts.” Palin has the infrastructure (and most importantly the personal integrity!) in place to do that.

Once people see that there is a better way, they will begin to regain hope for the future. That’s the single most important thing. What people most need today is hope that the future is going to be better than the past. Hope comes from trying to move forward. Just knowing that we are all trying would make a huge difference. It would help us pull together. Today, most of us are living in shame. We suspect that we played a role in causing this crisis, but no one is speaking out loud the words that need to be spoken to help us come to terms with what has happened.

As Nordlinger suggested, no other political figure has the guts to take on this simple but very, very important project. Palin has the courage to do what it would take to make it all happen. And I believe that she will. I believe that it’s just a matter of time. As the economic crisis worsens, those of us hoping to save our free market economy are going to have no choice. I cannot guaranty that this will happen before the next election. But I think it is possible. And I certainly hope that that is how it will play out. The sooner we start talking frankly and honestly and reaiistically about these issues, the better for every single person involved, in my assessment.

Rob

Investing: The New Rules #8 — Palinomics

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I’ve posted Entry #8 for my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Palinomics.

Juicy Excerpt: The Crony Capitalists who push Buy-and-Hold are not terribly concerned about the human misery they have caused. They have their own problems.We are on our own re this one. We can do this! We don’t need the “experts” to tell us how to invest. Common sense is what works. Common sense tells us that we should not have stayed with heavy stock allocations when stocks were priced to provide a long-term negative return. There aren’t too many politicians today who have what it takes to dare to say that out loud. Governor Palin is friends with real live people who are suffering real live pain as a result of this crisis. That makes a difference.

Community Note: Some of us were talking about John Greaney, owner of the Retire Early Home Page site, at a discussion board this weekend. John had the first internet site dedicated to the subject of early retirement. I still have good recall of the day I discovered John’s site. As soon as I found it, I got about the business of copying every article for inclusion in the binders I kept with information I had found on all aspects of the Retire Early experience. When my wife picked me up to drive me home from work that night, I couldn’t stop telling her about this cool new site I had discovered. In later years, I got to work with John building the Retire Early board at Motley Fool into the most successful board at that site. Those were fun times. I still have fond memories of them.

So I think it fitting that I say here on behalf of myself and the entire Retire Early Community —

Thanks, John!

Investing: The New Rules #7 — Dollar-Cost Averaging Is a Loser Strategy

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I’ve post entry #7 for the Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Dollar-Cost Averaging Is a Loser Strategy.

Juicy Excerpt: Yes, you paid different prices for your stocks if you practiced Dollar-Cost Averaging during that time. You bought some shares at a P/E10 level of 25, you bought some shares at a P/E10 value of 30. you bought some shares at a P/E10 value of 35. That’s another way of saying that you bought some shares at insanely high prices, you bought some shares at super-insanely high prices, and you bought some shares at prices that may not be described in mixed company.

Investing: The New Rules #6 — John Bogle’s Evil Twin

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I’ve posted Entry #6 in my Investing: The New Rules column at the Death By 1,000 Papercuts site. It’s entitled John Bogle’s Evil Twin.

Juicy Excerpt: My claim can be reduced to five words — Valuations Affect Long-Term Returns. Is it true? Or is it not true? You decide. But, if you decide that it’s true, please don’t then say that you think Buy-and-Hold still makes sense. Buy-and-Hold is the strategy that says you do not need to change your stock allocation in response to changes in valuations. What’s being described at this place is the strategy that says you must do so. Buy-and-Hold is the opposite of what is being described here.

Investing: The New Rules #5: The Great Karnac Knows (Not Quite) All

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I’ve posted Entry #5 of my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s entitled The Great Karnac Knows (Not Quite) All.

Juicy Excerpt: I was on a long drive with my wife Boo one time and we ran out of interesting things to talk about. So I started telling her about the wonders of The Stock-Return Predictor. She didn’t say anything for a long time. So I asked her what she was thinking. “It sounds like baloney,” she said. “It sounds too good to be true.”

Investing: The New Rules #4 — The Stock Investor’s Weather Report

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I recently posted Entry #4 for my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s entitled The Stock Investor’s Weather Report.

Juicy Excerpt: Say that a gambler pulls a slot machine lever only 10 times. Is it a certainty that the house will end up winners? it is not! Even though the odds favor the house, it is entirely possible for a gambler who only pulls the lever 10 times to end up ahead. Ten pulls of the slot machine lever are just not enough tries for the statistical probabilities that favor the house to assert themselves and come to control the outcome.

Investing: The New Rules #3 — The Stock-Return Predictor

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I’ve posted the third entry of my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s entitled Harness the Power of the Stock-Return Predictor.

Juicy Excerpt: It’s simple, isn’t it? You pay attention to price when buying everything else you buy. You need to begin paying attention to price when buying stocks too. Regardless of what The Stock-Selling Industry tells you is best. The “experts” in The Stock-Selling Industry are telling you what is best for them. You need to start tuning out their marketing slogans with the aim of doing what is best for you.

Investing: The New Rules — You Don’t Want to Be the Gambler, You Want to Be the House

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The Death by 1,000 Papercuts site recently published the second entry in my Investing: The New Rules column. It’s called You Don’t Want to Be the Gambler, You Want to Be the House.

Juicy Excerpt: Investing could be so simple. The only thing that complicates it is that The Stock-Selling Industry spends hundreds of millions in marketing expenses trying to persuade you not to take price into consideration. Why would people who make a living from selling stocks want us all to think that we should put our money into stocks regardless of the price at which they are selling? This is a hard one! I might have to think this one over for a few years and get back to you!

Investing: The New Rules — Today’s Understanding of Stock Investing Is Primitive

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I recently wrote the first entry for a new feature at the Death by 1,000 Papercuts blog. The new feature is entitled Investing: The New Rules. The first entry is entitled Stock Investing: Much of Today’s Understanding Is Primitive.

Juicy Excerpt: You don’t need to take “experts” like John Bogle too seriously. Bogle is a smart fellow. I have learned many important things from reading his work. But when he says something that does not add up, I remind myself that the conventional investing wisdom that he espouses is rooted in myth and urban legend and I think the issue through for myself until I come to an understanding in which I am able to feel greater confidence.