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

Roger Wohlner, owner of the The Chicago Financial Planner blog: Rob, interesting stuff, but it doesn’t address my question. Can you point to investment results in the real world supporting the valuation approach to investing you advocate? Is their somebody actually achieving superior results using this approach?

Roger:

Here are some people who I would talk to if you want to talk to real live people who have followed valuation-informed strategies and who obtained good results from doing so:

1) Rob Arnott — He told me that my ideas on investing are “sound.” I am sure that Rob has clients who follow his advice. He would have many more of them if academic researchers felt free to do research showing how successful his strategies are. Rob told me that two young researchers who wanted to do research on his ideas were taken aside and warned that they would be doing damage to their careers if they published such research. That’s the problem that I am always talking about. But if all you are looking for is people to say “I did this and it works,” I am confident that Rob can give you names of people to call.

2) Robert Shiller — Shiller is of course the grandfather of Valuation-Informed Indexing. He has some sort of financial advisory business now in addition to his academic work. He could point you to people. Like Rob Arnott and myself, Robert Shiller has faced pressure from Buy-and-Holders to keep it zipped. He has referred to these pressures in oblique ways in a number of his public comments. I have a theory that Shiller may have already written a follow-up to “Irrational Exuberance” in which he spells out the practical, how-to implications of his research findings and that he is just waiting until after the next price crash to publish it because he believes that it will get a better reception at that time.

3) Bogleheads Forum Posters — I met a good number of people at the Bogleheads Forum who follow valuation-informed strategies. People would say things like “I have been doing what Rob advocates for many years and obtaining very good results.” It would be nice if you could just go to the forum and ask for people who have followed this strategy to identify themselves and then talk to them. I don’t think the owners of the forum would permit that. But you might be able to run some searches that would identify those people and then send them e-mails. They keep quiet. They know what will happen to them if they share their experiences in plain, easy-to-understand statements. But these people are like all other people. They want to help their friends. So, if you listen carefully, you will see them trying to work around the limits that the site owners place on them and trying to help out their fellow community members with the real story from time to time.

4) Brett Arends at the Wall Street Journal — Brett writes about the problems with Buy-and-Hold frequently. He wrote a column saying that Buy-and-Hold is “hooey” because “they’re leaving out more than half the story.” I am sure that he got lots of letters from readers of the paper telling him that they followed true research-based strategies. Again, his editors need to be careful re how much they let him say or the Wall Street Con Men will remove their advertising from the Journal as punishment. But I am confident that Brett can give you names of real live people who follow research-based strategies.

5) Michael Kitces — Michael is a Maryland financial planner. Michael told me shortly after the 2008 crash that a lot of financial planners were talking privately about whether they should start telling the truth about what the research says. Clients were leaving their advisors because the long-term results under Buy-and-Hold were so bad that it was scaring them that they would never be able to retire. If you read Michael’s blog you will see that he is always trying to sneak honest stuff into it without being too obvious. Michael knows the story. I am sure that he has many clients who follow a research-based approach.

6) Adam Butler — Adam is a portfolio manager at Butler, Philbrick & Associates. He told me that the industry is trying to contain the discussion of what the research in this field says because if the truth gets out clients will know that the Buy-and-Hold emperor is wearing no clothes. He can give you some names.

7) Wade Pfau — Wade of course no longer publishes fully honest research since the Buy-and-Hold Goons threatened to get him fired from his job if he continued doing so. But Wade was very excited to learn how stock investing really works (I reported on a good number of his e-mails to me and I can provide you links to those reports if you think they would help) and he is a good guy. He now travels in circles where people talk privately about the dangers of Buy-and-Hold (Wade is friends with Michael). So I am sure that he now knows people who follow research-based strategies and who obtain good results.

8) Todd Tressider — Todd writes the Financial Mentor blog. He wrote an in-depth article pointing out the errors of the Old School safe withdrawal rate studies and he has been selling a report on Amazon on how to do retirement planning in a research-based way. I am sure that he has heard many good stories from readers of his report.

9) Rich Toscano with Pacific Capital Associates in San Diego told me that “you are doing a great service.” Rich obviously gives honest investing advice to his clients. He could let you know about some success stories.

10) Carolyn McClanahan, the Director of Financial Planning for Life Planning Partners, told me that her firm advocates Valuation-Informed Indexing. So she could put you in touch with some people.

People have been following research-based strategies for a long time, Roger. People get into this field for the same reasons that people get into other fields, because they want to do good work and feel good about themselves. So there naturally are people who give honest advice rooted in the academic research. If you go looking for them, you will find them. They are out there. My guess is that about 10 percent of the population follows research-based strategies today.

I’d like to make it 90 percent!

I could use your help!

The members of the Buy-and-Hold Mafia have big and scary Goons doing their dirty work!

But I’ll let you in on a little secret. Those big and scary Goons cannot do a thing to us if we stick together. Their intimidation tactics work only if the good people react in fear to them. If we stand up to them and just go about our business, they go down. In some cases, they land in prison! Once prison sentences are announced, that will go viral and I have a funny feeling that we won’t be hearing too much anymore about the use of Goon tactics being used by the Buy-and-Holders to spread their “ideas.”

Anyway, those are some names to get you started. I believe that you will find that the closer you look into this, the better you will feel about it. I have been developing the Valuation-Informed Indexing concept for 11 years now and I can tell you that it has never once let me down. This is good stuff.

Take care, man.

Rob

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

Roger Wohlner, the owner of the The Chicago Financial Planner blog: Rob, interesting stuff, but it doesn’t address my question. Can you point to investment results in the real world supporting the valuation approach to investing you advocate? Is their somebody actually achieving superior results using this approach?

All of the returns reported on in the Bennett/Pfau paper are from the real world, Roger. Those results are the results that those following valuation-informed strategies obtained.

If you are asking whether there are people who follow valuation-informed strategies, the answer is “yes.” Please take a look at the “People Are Talking” section of the site. It runs down the left-hand side of this page. You will see quotes from over 100 people endorsing my work. A number of these people are financial planners who advocate valuation-informed strategies. A percentage of their clients are obviously following their advice. Those investors are obviously obtaining far higher returns than Buy-and-Holders while taking on dramatically less risk.

The problem is that the number is too small. Many people have told me that they of course know about the 30 years of peer-reviewed academic research showing that there is precisely zero chance that a Buy-and-Hold strategy can ever work for even a single long-term investor. But they are afraid to give voice to what they believe in a public forum in clear and firm and certain language. Millions of middle-class people believe that the Buy-and-Hold advocates are shooting straight with them. Most of us have never experienced a case of financial fraud so pervasive. I know that I have never seen anything like this before.

This includes people like Jack Bogle. It was by reading Jack’s book that I learned about the errors in the Old School safe withdrawal rate studies. So Jack obviously gets it, at least on some level of consciousness. But what do you think would happen if Jack came clean about what he knows? I think it is fair to say that he is concerned that he would be attacked in the same way that I was and in the same that John Walter Russell was and in the same way that Wade Pfau was and in the same way that the researchers who wanted to do research on Rob Arnott’s ideas were and in the same way that so many others were. Jack Bogle himself does not feel that he can come clean at this point in the proceedings. The cover-up has gone on too long.

Do you have any suggestions?

I have thoughts on how to proceed. But I am not going to say that it will all be 100 percent easy for every single person involved. Looking back, that’s how we will all see it. In the long run, the benefits of telling people the truth about stock investing are so great that I don’t believe that there will be one person who will say it was the wrong thing to do. But how do we get ourselves out of the corner into which we have painted ourselves? How do we achieve the transition from the horrible place where we find ourselves today to the wonderful place where deep in our hearts we all want to be tomorrow?

That’s a question that we address as an entire society. We need policymakers involved. And economists. And academics. And investment advisors. And journalists. And bloggers. And ordinary investors. We all have a stake in seeing that we survive the economic crisis. So we all need to be involved in the solution to the problem.

That’s my sincere take re this important matter, in any event. I see it as my role to inform as many people as possible to the realities so that we all can play the role we need to play in the most intelligent and balanced and calm way possible, given the circumstances that apply.

I hope that helps a bit.

Rob

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

Roger Wohlner at the The Chicago Financial Planner blog: Interesting. One one question is this: Does anyone actually run a real portfolio based on this and if so what are the real results. By real results I mean real vs. back-tested. I’m not disputing what you are saying but the bottom line to me and I think to any investor is how has this done in the real-time world. Thanks.

Roger:

Here is the peer-reviewed research co-authored by Wade Pfau and myself that shows that Valuation-Informed Indexing has been far, far superior (providing far higher returns at greatly reduced risk) to Buy-and-Hold for the entire 140 years for which we have historical data available to us:

http://mpra.ub.uni-muenchen.de/29448/

You seem to be suggesting that research that looks at the entire historical record is “backtesting.” In this case, that is not so. Shiller put forward the first paper on the basic concept in 1981. That’s over 30 years ago. We now have 32 years of REAL TIME CONFIRMATION that this is what really works. In those 32 years, the market has continued to perform how it always performed in the past (as reported by Shiller in 1981) and NOT in accord with how the Buy-and-Hold Model posits that it should perform.

I can give some examples of how this concept has been applied in a forward-looking way.

I put my first post to the Motley Fool board on May 13, 2002. I said that, given what we know about how valuations affect long-term returns, the Old School safe withdrawal rate studies must have the numbers wrong (those studies do not adjust for the valuation level that applies on the day the retirement begins). One of the first questions I was asked by my Buy-and-Hold critics was: “Well, if our SWR calculations are wrong, what is the true SWR?” I didn’t know. I had never done a calculation. Logic told me that the existing calculations had to be wrong but logic did not tell me what the right number was.

I was putting my reputation on the line there. People were obviously going to look into this deeper than I had up to that point. I was going to be proven right or wrong. Not in a back-tested way. In a real-time, going-forward way.

I was proven right. John Walter Russell ran the numbers and found that the true SWR at the top of the bubble was 1.6 percent. Nothing even remotely in the same neighborhood as 4.0. And about ten years later, every major publication in this field had run articles reporting that the Old School SWR studies got the numbers wildly wrong. There have been articles in the Wall Street Journal, the Economist, Smart Money, Reuters, and on and on and on. How did I know that 10 years earlier than the biggest-name experts in the field?

Another case is when Shiller wrote the following words in his book (which was published in March 2000):

“Individuals, foundations, college endowments and other beneficiaries of the market are going to find themselves poorer, in the aggregate by trillions of dollars. The real losses could be comparable to the total destruction of all the schools in the country, or all the farms in the country, or possibly even all the homes in the country.”

How did Shiller know in March 2000 what was going to happen in September 2008? He knew because he knows how stock investing really works. The word “overvalued” means just what it suggests. It means that stocks are mispriced. And the entire purpose of a market is to get prices right. So mispricings are always corrected over the course of 10 years or so. When there are massive mispricings, there are massive corrections. Those corrections are called “recessions,” or, in extreme cases, “Great Depressions.” We are living through one of the extreme-case massive corrections today.

I’ll point you to a third case, this one involving the King of Buy-and-Hold, Jack Bogle. I recorded a RobCast on this one, RobCast #41, “Bogle and Valuations.”

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

Bogle said in the wake of the 2008 crash that stocks were at the time priced at $9 trillion less than they had been previously priced. He pointed out that it is absurd to believe that the U.S. economy lost $9 trillion of real value in a few months of time. He is of course correct about this.

So what happened?

If the Buy-and-Hold Model is valid, stock prices accurately reflect economic values. But the #1 advocate of Buy-and-Hold in the world says that they do not. Huh?

If Shiller is right, stock prices in the short term reflect not economic values but investor emotion. Investor emotion can of course swing wildly without any rational cause. So the loss of $9 trillion in value that we saw in 2008 entirely fits the Valuation-Informed Indexing model but not at all the Buy-and-Hold Model. Again, this was not backtesting. None of us Valuation-Informed Indexers knew in advance that Bogle was going to make such a statement and then developed our model to fit that statement. We described first how the model works and then Bogle (someone with zero reason to want to slant things in our direction) made a statement confirming the reality of our model.

May I direct your question back at you?

Is there any backtested support for the Buy-and-Hold Model?

There is not.

Buy-and-Hold became popular with the 1974 publication of “A Random Walk Down Wall Street.” Many people became convinced by the results they saw following that date that Buy-and-Hold works. But stocks were priced at insanely low levels in 1974. Valuation-Informed Indexers say that stocks MUST provide insanely good results starting from such price levels. So the results we saw from 1974 through 1995 are 100 percent in accord with what a Valuation-Informed Indexer would expect and predict.

From 2000 forward, stock results have been poor. Stocks were overpriced throughout that time-period. So those results are again 100 percent in accord with what Valuation-Informed Indexing says we should see.

There are four years in which Buy-and-Hold paid off big time — 1996 through 1999. Those were amazing years for Buy-and-Holders, I certainly give you that. But the question is — Are those returns permanent? The Valuation-Informed Indexing model posits that stocks are priced today for a 65 percent drop sometime over the next few years (there has never yet in history been a single time when we had a massive bull market and not ended up at a P/E10 level of 8 or lower). If we see a 65 percent price drop, no one is going to say that Buy-and-Hold works.

I have 140 years of historical data that supports Valuation-Informed Indexing. But the Buy-and-Holders say that that is not enough for me to be permitted to post on any internet discussion board or blog. But it is not possible for me to have MORE than 140 years of support. There are only 140 years of data available to us.

You are suggesting that only backtested years count. But Buy-and-Hold has never been backtested! Buy-and-Hold started in 1974 and we are still in the same Bull/Bear cycle that was getting started then. So we do not know how Buy-and-Hold will end up performing in the first forward-facing test it has ever been put to. It could be that, by the time this first test is complete, there won’t be one human being with a good word to say about Buy-and-Hold.

I don’t say that I am God, Roger. I have zero problem with the idea of adding words to every post I advance saying “this fellow has been wrong about a lot of important things over the course of his life and it is entirely possibly that it is happening again.”

Do you think my Buy-and-Hold critics would be okay with adding the same words to THEIR posts?

Are Buy-and-Holders fallible?

If they are fallible and if they made a mistake in this case, how is it that they will ever discover this?

Will it take a Second Great Depression?

My view is that we are all fallible and that we all should acknowledge it and show respect and affection to those of our friends who make an effort to show us where we might have gotten something wrong. It is that belief that is reflected in the published rules of every board and blog I have ever visited. It is my belief that every single one of us, Buy-and-Holders and Valuation-Informed Indexers alike, should want to see those published rules honored both in act and in spirit.

I have learned a great deal from my many Buy-and-Hold friends. I think that I have something important to teach them in return. I would like to have the opportunity to pay back that intellectual debt.

I am grateful for your willingness to engage in a little back-and-forth discussion here.

Rob

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

Roger Wohlner, Owner of the The Chicago Financial Planner blog: If buy and hold is defined as buy, hold, forget, and ignore I agree this is a flawed approach at best. However buy and hold when defined as investing in harmony with one’s financial plan and changing personal/financial circumstances is sound. Under this approach one’s financial plan is reviewed and if needed updated periodically and changes are made to investment holdings and allocations if appropriate. Along the way portfolios are rebalanced and holdings are monitored against whatever the investor’s criteria might be. The real buy and hold here is that trading is not done for its own sake only when their is a valid reason. As a fellow advisor once told me early on in my career buy and hold is an active strategy, activity should not be equated with advice and prudence.

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

Roger Wohlner, Owner of the The Chicago Financial Planner blog: Isn’t this all just a bit over dramatic? C’mon this is investing, not the situation in the Middle East, the war on hunger or poverty, or most importantly the state of Green Bay Packer football.