A Rich Life

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

My E-Mail to New York Times Columnist Mark Hulbert

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Set forth below is the text of an e-mail that I sent to New York Times Columnist Mark Hulbert on January 31, 2010.

Mark:

I have long admired your work.

I wanted to let you know about a Google Knol that I recently wrote entitled “Why Buy-and-Hold Investing Can Never Work.” This article sums up eight years of full-time research on some questions that I believe have broad public policy ramifications.

Here’s a link:

Google Knol on Why Buy-and-Hold Investing Can Never Work

Rob Bennett

http://arichlife.passionsaving.com

My E-Mail to Newsweek Columnist Robert Samuelson

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Set forth below is the text of an e-mail that I sent to Newsweek Columnist Robert Samuelson on February 3, 2010.

Mr. Samuelson:

My name is Rob Bennett. I write the “A Rich Life” blog (http://arichlife.passionsaving.com). 

I have been reading your column for years and am a huge fan of your work.

I have studied the issues raised in your recent column “The Perils of Prosperity: The Story Behind the Economic Crisis” in great depth over the past eight years and believe that you are making extremely important and far-reaching points. If you will send me a direct e-mail address, I would like to send you a longer e-mail making the case why a belief in the Efficient Market Theory and more importantly the widespread promotion of Buy-and-Hold Investing were indeed the primary causes of the economic crisis (this is the one point re which I don’t go along with what you say in the column).

I have written a Google Knol entitled “Why Buy-and-Hold Investing Can Never Work” that provides background on my thinking on these questions:

Google Knol on Why Buy-and-Hold Investing Can Never Work

Good luck in all your future endeavors!

Rob

http://arichlife.passionsaving.com

My E-Mail to Keith Hennessey, Member of the Financial Crisis Inquiry Commission

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Set forth below is an e-mail that I sent to Keith Hennessey, a member of the Financial Crisis Inquiry Commission and author of the blog at KeithHennessey.com, on January 21, 2010.

Mr. Hennessey:

My name is Rob Bennett. I write the “A Rich Life” blog (http://arichlife.passionsaving.com).

I have enjoyed your recent articles on the health care legislation. You offer an intelligent and stimulating take.

I would be grateful if you would take a few minutes to look at a Google Knol that I have written entitled “Why Buy-and-Hold Investing Can Never Work.” This Knol is the product of years of work on my part and on the part of thousands of my fellow community members in the Retire Early and Indexing discussion-board communities. The Knol addresses a matter of great public policy significance as it argues that the continued promotion of Buy-and-Hold for 30 years after the academic research showed that valuations affect long-term returns was the primary cause of the economic crisis.

I would of course be pleased to hear either positive or negative comments (the former cheer my day and the latter help me learn). 

Here is a link:

Google Knol on Why Buy-and-Hold Investing Can Never Work

Thanks for listening. And I of course wish you the best of luck with your fine blog.

Rob

http://arichlife.passionsaving.com

My E-Mail to John Hayward, Author of the Doctor Zero Blog

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Set forth below is the text of an e-mail that I sent to John Hayward, author of the Doctor Zero blog, on January 22, 2010.

John:

My name is Rob Bennett. I write the “A Rich Life” (http://arichlife.passionsaving.com) blog. 

Like you, I often write about middle-class concerns (although I write about personal finance rather than politics).There’s no one I know of who possesses a sharper understanding of middle-class political concerns than you do. Your blog entries have helped me sort out my own thoughts on numerous occasions. 

I would like to let you know about an issue that APPEARS to be a personal finance topic but that in reality is a political one. It is the question of whether investors should follow a Buy-and-Hold strategy. The reality is that this strategy was discredited by the academic research 30 years ago. The Stock-Selling Industry continues to promote it because it puts millions in their pockets and because they don’t want to acknowledge the human misery they have caused by failing to acknowledge the mistakes they have made over the past three decades.

I need help in getting this message out. If you have any interest, I hope you will contact me so that I can share with you what I have learned from working this issue full-time (as a blogger, with no compensation) for eight years now. The issues are simple. The implications are far-reaching. We could help millions of middle-class people if we could create a place where they could gain access to accurate and honest reports on what the academic research says about how to invest effectively. I think this is possible if we could get the word out about this on Tea Party and Sarah Palin blogs. As you know, there are a lot of people hurting because of the economic crisis, which I believe was caused primarily by the reckless promotion of the Buy-and-Hold idea.

I have written a Google Knol entitled “Why Buy-and-Hold Investing Can Never Work” that provides some background.

Thanks for listening. You are touching the hearts of a lot of people and educating a lot of people about things that they need to understand to make sense of things happening to them. I wish you all the success in the world with your blog.  

Rob

http://arichlife.passionsaving.com

My E-Mail to Jonathan Curiel, Author of the True Slant Blog

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Set forth below is the text of an e-mail that I sent to Jonathan Curiel, author of the True Slant blog, on January 25, 2010.

Jonathan: 

My name is Rob Bennett. I write the “A Rich Life” blog (http://arichlife.passionsaving.com).

 I much enjoyed your recent blog on how support for Sarah Palin does not always break down along typical liberal/conservative lines. I am a former liberal populist who has been pushed by changing political tides into the Sarah Palin camp. I also like your description of what journalism is about. It’s about asking questions and following up leads. It’s about open-mindedness and a rejection of dogmatism. It’s about loving to learn and loving to share what you learn.

I have a story to tell about the economic crisis that I hope you too will become interested in sharing with your readers. Today’s conventional investing wisdom is the OPPOSITE of what the entire historical record shows to be what works. Buy-and-Hold has been pushed for 30 years not because the academic research shows that it can work for investors but because it is the grandest Get Rich Quick scheme of all time and has put hundreds of millions in the pockets of the “experts” in The Stock Selling Industty. I am trying to change this. I am trying to use the internet to make middle-class investors aware of the dangers of Buy-and-Hold and the appeal of the alternate investing model (Valuation-Informed Indexing).

Here is a link to a Google Knol that I wrote (“Why Buy-and-Hold Investing Never Works”) that provides background:

 Google Knol on Why Buy-and-Hold Investing Can Never Work

Please let me know if you have questions or would like to learn more. Best of luck with your blog and other journalistic pursuits!

Rob

http://arichlife.passionsaving.com

My E-Mail to William Jacobson, Author of the Legal Insurrection Blog

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Set forth below is the text of an e-mail that I sent to William Jacobson, author of the Legal Insurrection blog, on January 25, 2010.

Mr. Jacobson:

My name is Rob Bennett. I write the “A Rich Life” blog (http://arichlife.passionsaving.com).

I greatly admire the work you did at your blog during the Massachusetts Senate race and especially on the role of the internet in making things turn out the way they did:

http://legalinsurrection.blogspot.com/2010/01/now-thats-internet-dominance.html

I have a story to tell about how the internet has been used in both good ways and bad ways in recent years to expose the flaws in the Buy-and-Hold model of understanding how stock investing works and to block middle-class investors from learning about those flaws. It is an amazing story. I need help publicizing the matter for it to bear good fruit.

Here is a link to a Google Knol (“Why Buy-and-Hold Investing Can Never Work”)
that I wrote providing background:

http://knol.google.com/k/rob-bennett/why-buy-and-hold-investing-can-never/1y5zzbysw7pgd/1

Please let me know if you have questions or would like to know more about my experiences trying to use the internet to help middle-class people learn the realities of stock investing. Best of luck with your Legal Insurrection (that phrase expresses precisely the right spirit for dealing with the obstacles standing in the path of progress and freedom today, in my view)!

Rob
http:arichlife.passionsaving.com

My E-Mail to Yale Professor Robert Shiller, Author of Irrational Exuberance

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Set forth below is the text of an e-mail that I sent on January 14, 2010, to Yale Professor Robert Shiller, author of Irrational Exuberance.

Mr. Shiller:

My name is Rob Bennett. I write the “A Rich Life” blog (http://arichlife.passionsaving.com). I am a big fan of your work in the investing field and have done a good bit of work of my own expanding the reach of your insights. I have considered writing to you on several earlier occasions, but concluded that the time was not ripe to ask you to take time from your schedule to read my words. I now believe that the time is ripe. I hope you will be able to give a little bit of your time to review the words below.

The development that has pushed me over the line is my writing of a Google Knol entitled “Why Buy-and-Hold Investing Can Never Work.” I believe that the Knol does a good job of summing up eight years of work that hundreds of us in the Retire Early and Indexing discussion-board communities have engaged in as a consequence of what we have learned from your research and your books. I would be thrilled if you could offer any comments (either positive or negative, of course) on the Knol.

I also would benefit from any comments that you could offer on the calculator (“The Stock-Return Predictor”) linked to at the Knol. My focus has been on developing  practical asset-allocation strategies rooted in your theoretical insights. The calculator performs a regression analysis of the historical stock-return data to reveal to investors the most likely 10-year return for U.S. stocks starting from any of the various possible valuation levels. If you see problems with the calculator, I would of course like to alert my readers to them. If you are able to endorse it, that would of course help me promote the calculator as a valuable investor tool.

If it would help you to look at comments from 50 people (a mix of experts in the field and ordinary middle-class savers and investors) on my work, please take a look at the “People Are Talking” section on the left-hand-side of the home page of my blog:

There’s one other matter that I would like to run past you. You will note when reading the Knol that I refer to a “ban on honest posting” that applies to internet discussions of the flaws of the Buy-and-Hold Investing Model. My view is that your research showing that valuations affect long-term returns ruled out the possibility that Buy-and-Hold could work in the real world (stocks obviously do not offer the same value proposition at different valuation levels if valuations affect long-term returns and thus failing to adjust one’s stock allocation in response to big changes in valuations makes precisely zero sense). I of course understand that there are millions of good and smart people who believe otherwise. The problem that we all face today, according to my experience on the internet, is that many of those who believe in Buy-and-Hold are hotly opposed even to the idea of permitting honest and civil and reasoned discussion of these issues.

Humans do not change their views on reading a single article or book putting forward new ideas. We need to hear about new points of view numerous times to gradually let in the new approach and to consider its implications. Once this process gets started, I am confident that the Rational Investing Model (I refer to the model saying that allocation changes are required for those hoping to have a realistic chance of long-term success as “Rational Investing”) will win the confidence of most investors. However, we have now spent eight years trying to get these discussions started without success! Thousands of ordinary investors have expressed a desire to be able to hear both sides of the story. But big-name institutions (Motley Fool, Morningstar, Index Universe.com, etc.) have blocked honest posting by those who have doubts about the Buy-and-Hold Model. And big-name experts in the field (John Bogle, William Bernstein, Jonathan Clements, etc.) have gone along.

I am planning this year to devote a good bit of effort to getting political blogs involved in my effort to open the internet to honest posting on the flaws in the Buy-and-Hold Model. Given the economic crisis that was caused by the massive promotion of Buy-and-Hold, this has obviously become a political issue. It is my belief that responsible people should be working hard to insure as smooth a transition from the Buy-and-Hold Model to the Rational Model as possible. While I very much want to “win” this battle, I also very much do not want to cause a negative sort of populist reaction that could lead us all to bad places. In my mind (I have made my living as a journalist for many years), discussion is healing. I am not able to see how anyone could be harmed by opening the internet to honest discussion. But I worry that the reaction is going to be bad when middle-class workers find out how long the big names in this field have known about the effect of valuations and yet have failed to let them know of the risks of following a Buy-and-Hold strategy.

This is a delicate matter. I don’t know that it is fair to expect you or anyone else to know precisely how to proceed. However, to the extent that you have any thoughts, I certainly would like to hear them and I certainly can promise to give them serious consideration.

Thanks for listening. And thanks for the wonderful and life-affirming work that you have been doing for many years. I often point out that I do not believe that most people appreciate the depth of some of John Bogle’s most important insights (I am a big believer in indexing although I like to think of myself as the most severe critic of Buy-and-Hold alive on Planet Earth today). I think this is ever more so in regard to the work that you have done. You have of course enjoyed a good bit of fame in recent years. As people begin to explore the practical implications of your insights in a more in-depth way, I believe that they are going to see more and more and more gold buried in those hills. We are living in dark economic days today but my belief (hope?) is that they are going to take us to The Golden Age of Middle-Class Investing. It may be that the primary reason why we will be able to turn this darkness into something very good will be the fine work that you did for decades before most investors appreciated the need for it. I am not a flatterer. But I feel no hesitation in describing your work in this field as “heroic.” On behalf of all middle-class investors looking for a better and more realistic way to plan for their retirements, I salute you, sir!

Rob

My E-Mail to The HillBuzz.com Web Site

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Set forth below is the text of an e-mail that I sent to the www.HillBuzz.com web site on January 18, 2010.

HillBuzz:

My name is Rob Bennett. I write the “A Rich Life” blog (http://arichlife.passionsaving.com).

I think it is great that you are sufficiently open-minded to support both Hillary Clinton and Sarah Palin. We need more of that freethinking spirit!

I was impressed by your article entitled “Liberals’ Troll Attacks and Harassment Have Reached New Heights Over the Scott Brown Race.”

I have a story to tell about the use of similar tactics being used to keep middle-class Americans from learning the realities of stock investing. I would like to obtain publicity for this story. If you have any interest, I hope you will contact me with questions or to learn more.

The dominant model used today to explain how stock investing works is the Buy-and-Hold Investing Model. This model is supported by academic research that was done in the 1960s and 1970s. But few know that the academic research has been showing for 30 YEARS NOW that Buy-and-Hold always leads to huge losses for those who follow it for the long term and to economic crises for the entire society that tolerates widespread promotion of it. There is not one exception in the historical record.

The problem is that The Stock Selling Industry makes hundreds of millions promoting Buy-and-Hold. Even those personally inclined to tell investors the straight story worry that they will lose their employment if they spill the beans. I believe that we should be using the internet to share with each other the realities and thereby to get our economy out of the crisis it is in today.

But the harassment tactics that you describe in your article have been employed for eight years now to block thousands of members of the Retire Early and Indexing discussion-board communities from being able to use the internet to learn the stock investing realities that The Stock Selling Industry does not want us to be able to talk about.

Here is a link to an article that explains why the reckless promotion of Buy-and-Hold is the true cause of the economic crisis:

True Cause of the Current Financial Crisis

Here is an article providing links to 20 articles in which leading figures in the field acknowledge that Buy-and-Hold has long been discredited:

Buy-and-Hold Discredited

Here is an article providing snippets of comments made by 101 of my fellow community members that express a desire that honest posting on these topics be permitted on our boards and blogs:

Desire for Honest Posting

Here is an article setting forth the text of an e-mail that I sent to my congressman Rep. Frank Wolf (R-VA) seeking his help in enacting legislation to deal with this matter:

E-Mail to Rep. Wolf

http://www.passionsaving.com/internet-harassment.html

Thanks for listening. And good luck with all your future endeavors!

Rob

http://arichlife.passionsaving.com

My E-Mail to Cassy Fiano, Owner of the Cassy Fiano Blog

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Set forth below is the text of an e-mail that I sent to Cassy Fiano, owner of the Cassy Fiano blog, on February 1, 2010.

Cassy:

My name is Rob Bennett. I am the author of the “A Rich Life” blog (http:arichlife.passionsaving.com).

I was impressed with your article on Lila Rose and Planned Parenthood, which appeared today at the “Hot Air” site. I have a concern that there is a move in our society to the greater use of intimidation tactics to silence views that those practicing the intimidation do not want others to hear. I am a journalist by trade and a big-time believer in free speech, so this naturally alarms me. I have my own story to tell about the use of intimidation tactics being used to silence a minority viewpoint. I will outline my story here with the hope that I can interest you in writing about it at your blog. Everything I say below can be documented in the event that you develop an interest in pursuing this.

I was the most popular poster at the Motley Fool site during the days when I was writing only about saving issues. On May 13, 2002, I put forward a post that pointed out an analytical error that causes the studies that financial planners use to help us to plan our retirements to get all the numbers wildly wrong. The post was well-received in my posting community and numerous big-name experts have in the years since confirmed that I was right about the flaws in the retirement studies. In the event that stocks perform in the future anything at all as they always have in the past, these errors will result in failed retirements for millions of middle-clas investors.

There was an individual who posted at the Motley Fool board who had produced one of the studies using the flawed methodology and who posted it at his web site. His numbers made people feel that they could afford to retire many years sooner than they actually could and this made him popular among many investors. He launched a smear campaign against me and against the Motley Fool board community as a means of blocking people from learning about the errors in his study. This smear campaign has continued now for nearly eight years and has spread to scores of discussion boards and blogs. He and his Goon Squad meet every day on the internet to plan new strategies for destroying boards and blogs that permit honest posting on the investing questions at issue. His tactics include threats to kill the loved ones of posters who post honestly on these matters or who speak in defense of others who post honestly.

It gets worse. I have contacted numerous big-name experts for help. The same pattern applies in nearly every case. The expert acknowledges that I am right on the substance question. But the expert declines to get involved to help me and the thousands who have expressed a desire to be able to post honestly on these matters. The root issue here is whether Buy-and-Hold Investing works or not. As I researched the matter trying to learn why so many experts in this field are not willing to speak out against the abusive posting, I learned that the academic research has been showing for nearly 30 years now that the chances of Buy-and Hold working for the long-term investor are precisely zero.

Buy-and-Hold has brought in hundreds of millions for The Stock-Selling Industry. A “decision” has been reached (I believe with a great deal of cognitive dissonance influencing the thinking of the parties involved) not to let middle-class investors know about a mistake that is costing them their retirements and that was the primary cause of today’s economic crisis (the loss to middle-class investors was roughly $12 trillion and a loss of $12 trillion in wealth is obviously going to wreck a consumer-based economy for many years to come).

There has been much discussion of the research showing that Buy-and-Hold can never work. Knowledge of the problem is growing all the time, especially since the stock crash. But for a large number of people to come to a full understanding of what is happening, we need to have open discussion of the realities. Most of those viewed as “experts” in the field do not want to talk frankly about this, knowing that it would be career suicide to do so. I believe that the answer is to go directly to middle-class investors, to explain to them the realities, and thereby to create pressure for those in The Stock-Selling Industry to come clean. My strong sense is that many would love to do just this, if only they were first provided the “cover” that would be provided by open discussion of these matters on the internet.

My problem is that most personal finance bloggers do not today possess a strong understanding of the realities. In ordinary circumstances, a learning experience could be started by bringing the matter up for discussion and by responding to questions and all this sort of thing. But numerous bloggers have let me know that they are not willing to participate in such discussions because of what they know the Goon Sqauds will do to them and their sites if they permit honest posting (numerous boards have been burned entirely to the ground by the Goons Squads over the past eight years).

I need help to break this logjam. I would like to get some political blogs involved to bring pressure on the personal finance blogs to stand up to the Goons and to begin discussions on the key isssues and thereby to take things over time to a good place.If you have any interest in pursuing this, or if you know of someone else who might, I would be grateful if you would contact me with any questions you would like to pursue before getting involved.

I don’t want to burden you with too much materal in my first e-mail. I will set forth just one link, to a Google Knol that I recently wrote that provides background on the nature of the analytical error that has caused all the trouble and that needs to be corrected for us to get out economy back on the right track. The Knol is entitled “Why Buy-and-Hold Investing Can Never Work.”

Thanks for listening. I wish you continued success with your blog.

Rob

http://arichlife.passionsaving.com

My E-Mail to Washington Post Columnist E.J. Dionne

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Set forth below is the text of an e-mail that I sent to Washington Post Columnist E.J. Dionne on January 18, 2010:

E.J.:

I read your book (Why Americans Hate Politics) some years back and have read hundreds of your columns over the years. Thanks for the learning experiences you have provided. 

I was prompted to write you after reading your recent column entitled Mass. Senate Race’s Lesson for Obama. I do not agree with everything that you say, probably because I come at these questions from a different political perspective (I am a Sarah Palin supporter). However, I strongly agree with your argument that one of the biggest factors working against President Obama is that he came into office at a time when the odds of voters seeing a good economic performance were exceedingly low REGARDLESS of the policies pursued.

 I believe that stock valuations affect long-term returns. If this is so, then the extent of overvaluation that applies at any given point of time is money that investors view as real and belonging to them but money that is fated to go “Poof!” within the next few years. At the top of the recent bubble, the amount of overvaluation in the U.S. stock market was roughly $12 trillion. The Going-Poof Process began during the last months of the Bush Administration, but, in the event that stocks perform this time anything at all as they have on every earlier occasion on which prices went to insanely dangerous levels, we are likely to see at least one more major price crash before this Bull/Bear cycle is complete. That obviously would take trillions more out of the pockets of middle-class Americans and cause Obama great political distress.

I have recorded a podcast that uses P/E10 (the most effective valuation metric according to people like Yale Professor Robert Shiller) to “predict” presidential success (looking backwards, I made “predictions” as to how each president since Eisenhower should have done in office based on the P/E10 level that applied on the day he was sworn in and then offered comments as to how effective each of these predictions turned out to be).

I think the P/E10 tool does a reasonably good job of predicting presidential success. It’s not hard to understand why this would be so. How the economy is doing is the most important concern of most voters. The economy is obviously far less likely to do well at a time when stocks are priced so as to cause trillions in middle-class losses than it is when stocks are priced so as to cause trillions in middle-class gains.

Here is a link to the podcast (#88, “Predicting Presidential Success Using P/E10”):

http://www.passionsaving.com/personal-finance-podcasts-page-eleven.html

Please let me know if you have any thoughts or questions. I would be thrilled to get another political junkie interested in this idea of using stock valuations to gain insight into whether new presidents have the winds at their backs or blowing in their faces.

Rob

http:arichlife.passionsaving.com