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“What Happened in 2008 Was a Test of Buy-and-Hold But Not a Big Test. All Buy-and-Holders Say That They Will Hold Through Anything and We Saw That That Is Not the Case. Some — Including the Author of a Book on Buy-and-Hold! — Failed When They Were Put to the Test.”

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

It’s interesting that you say there are no buy and holders even though there are plenty and the bogleheads has evidence. I increased my stock allocation moderately and bought plenty of stocks during the crisis.

The ironic thing is that the one ‘VII’ guy failed to make adjustments. I don’t understand how you can be so dense.

What happened in 2008 was a test of Buy-and-Hold but not a big test. All Buy-and-Holders say that they will hold through anything and we saw that that is not the case. Some — including the author of a book on Buy-and-Hold! — failed when they were put to the test.

Most did not fail. That’s fair to say. But how big was the test? It lasted a few months. You say that you would have held no matter how low prices fell and no matter how long low prices remained in effect. But you just don’t know what you would have done in such circumstances until you have lived through them, Taylor was 100 percent certain that he would never falter too. It’s all just words until you are actually living through the pressures that come with a loss of most of your life savings. So nothing you say about this is really persuasive.

I find the historical return data persuasive. Most Buy-and-Holders sell when prices drop. Prices couldn’t drop as low as they do in bear markets if that were not so. All Buy-and-Holders swear that they will never sell no matter what but most Buy-and-Holders sell at the lows because that’s human nature and human nature counts for more than the Buy-and-Holders’ swearing at a time when prices are high that they will never sell. Anyone can justify violating an oath he took at an earlier time by pointing out that circumstances have changed. They ALWAYS change when prices reach levels as high as they are today. It’s important to take note of that at a time when something constructive can be done about it rather than waiting until all that is left to you are the sorts of rationalizations that we saw Taylor Larimore engage in back in 2009.

We can prove that one too. The proof is that the Buy-and-Holders who swear that they will never sell demand that those pointing to the last 36 years of peer-reviewed research be banned from “their” discussion boards. They cannot bear to hear the history of stock investing discussed in their presence. Why the heck not? If they are no darn confident that their strategy is going to work out, why does it bother them to hear another point of view discussed? That’s not a sign of confidence, Laugh. That’s not a sign of a good strategy.

I didn’t increase my stock allocation when prices were at fair-value levels. But there’s a way to check whether I lost confidence in my beliefs at that time or not. Go to the RobCasts that I recorded when prices were at moderate levels. I started every one off saying that stocks offered a strong long-term value proposition at those prices. Why did I say that if I didn’t possess confidence in the research? I possessed confidence and I demonstrated it with behavior that can be examined in a record that was created in real time.

And of course I did not just tell others that the value proposition for stocks was strong at the time, I took action to take advantage of that opportunity myself. I didn’t run around like a crazy person making sure to buy within 48 hours. I went about a process of making a reasoned buy that everyone in the family agreed to so that everyone in the family would be comfortable sticking with it for the long term. I played it just the way a Valuation-Informed Indexer should play it. We don’t believe in making emotion-based decisions. If I has been running around like a crazy person seeking to make the buy before time ran out on the amazing offer, that would have been emotional. I handled things in an emotionally healthy way. That is 100 percent in tune with the strategy and 100 percent in tune with what the last 36 years of peer-reviewed research in this field shows is what always works in the long term.

And why are you engaging in deception re this point today? You know what I did. Why don’t you come here and say: “Rob, I don’t agree with some of your other posts but I am impressed that, when the time came when prices were where you said they need to be for you to buy, you really did tell others to buy and begin taking steps to buy yourself. The real test of a strategy is not words but actions and you showed during that brief time-period when prices were at fair-value levels that you don’t just talk the Valuation-Informed Indexing talk, you actually walk the Valuation-Informed Indexing walk. As someone who is personally persuaded by advocates of a different strategy, I find that very cool and I am going to continue to ponder it as time goes on to see if there is something for me to learn in the contrast between your behavior and the behavior of Taylor Latrimore, one of my Buy-and-Hold friends who did not show the same courage of his convictions that you showed when the pressure was on.”

You cannot say those words, Laugh. It’s not in you. I mean no personal offence but it’s not in you because you are too scared to let in what happened in those months. You saw your Buy-and-Hold friends lose their confidence in their strategy at the very worst time to lose confidence in it. There is a part of your brain that you have silenced but that is still functioning in the background that tells you that that is something you should examine in some depth before Buy-and-Hold is put to its next test. The part of you that you silence wants to participate in civil and reasoned discussions at every discussion board and blog on the internet so that he learns as much as he possibly can by listening to as many different perspectives as possible. But the soul-crushing side of you, the Get Rich Quick side of you, the financially incompetent side of you, the Goon side of you, says: “No, keep on pumping out more dishonest and abusive garbage, it’s been working so great so far.”

I don’t think it has been working so great so far, Laugh. If it had been working, you wouldn’t be today walking a path that leads to a prison sentence in the days following the next price crash. You don’t possess confidence in your strategy and every post that you advance here shows it. You cannot discuss the last 36 years of peer-reviewed research in a civil and reasoned manner. You can’t even tolerate others discussing it while you sit off to the side a bit in silence. You feel compelled to crush such discussions when you hear them spring up. Not because you truly believe that the peer-reviewed research in this field is on your side. Because you WANT to believe that the peer-reviewed research is on your side and you cannot think of any other means to keep that fading belief alive other than to engage in insanely abusive and, yes, even criminal behavior to keep it from flickering out.

Not this boy, Laugh. I am your friend. You cannot bear to acknowledge it, but that small, remaining, rational voice in your head sees it. That’s why you get so ugly. That voice is telling you what is real and the stronger, irrational voice that controls you cannot bear to hear what the small voice says. I speak up in tune with the small voice and you feel hate for me because you feel threatened by the small voice. The small voice comes from a good place within you. Taylor Larimore wished in the early months of 2009 that he had listened to his small voice on all those occasions when some kind person had suggested to him that he might want to give it a try. You have that chance today. You have that chance every day until the day comes when the money is gone and cannot be called back. It’s your friends who are telling you to at least give that small voice a listen before shutting the door on your future.

These are my sincere thoughts re these matters, Laugh. Hate me as much as you want. I cannot control that. But I really do believe deep in my heart that the very fact that you hate so much is evidence that the last 36 years of peer-reviewed research in this field is telling us all something very, very, very important.

It will be interesting to see how things play out. I naturally wish you all the best that this life has to offer a person regardless of what investing strategy you elect to follow today or at any time in the future.

Rob

“When Bogle Made It a Cardinal Principle of Buy-and-Hold That Investing Should Be Rooted in Realities Revealed Through the Peer-Reviewed Research, He Made It a Cardinal Principle of Buy-and-Hold That Buy-and-Hold Would CHANGE Over the Years as New Realities Were Revealed.”

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

So your argument is that buy-and-hold doesn’t work because no one buys and holds.

This is the logical fallacy known as “begging the question”, attempting to prove a point by simply restating your premise. It is a form of circular reason. Most people incorrectly use “begs the question” when they mean “raises the question”.

Just wanted you to learn something new.

It’s true that investors are not capable of buying and holding and that the Buy-and-Hold strategy cannot work until investors become capable of following it in the real world. Do you know what would make investors capable? Permitting honest posting on the last 36 years of peer-reviewed research! Stocks prices are self-regulating if investors are capable of accessing the information they need to access to act in their self-interest. The problem for all of us is that darn Ban on Honest Posting, the death threats and all the rest of it.

If investors have access to honest and accurate reports on the last 36 years of peer-reviewed research, you are not going to see any more bull markets. Prices would just always remain near fair-value levels (a P/E10 of 15). So there would be no need to change your stock allocation. Sticking with the same stock allocation is Buy-and-Hold, no? Is that not the basic idea, learning from the peer-reviewed research and always sticking with the same stock allocation?

Valuation-Informed Indexing is just Buy-and-Hold more fully developed. We didn’t know all there was to know about how stock investing works back in the late 1960s, when Buy-and-Hold was developed. In 1981, we clicked that last oh-so-important piece into place. Now we know. Intellectually. But 90 percent of us do not know the realities emotionally. For the remaining 90 percent of us to catch up with the Valuation-Informed Indexers, we would need as a society to act to open every discussion board and blog on the internet to honest posting. That’s how we spread the word. It is only by spreading the word re the last 36 years of peer-reviewed research that we can bring the 90 percent of investors still living in the world of 1980 up to speed.

We are not on different sides, Anonymous. Your first mistake was to assume that, because I was telling you something new, I was your enemy. Science is a quest for truth. When Bogle maden it a cardinal principle of Buy-and-Hold that investing should be rooted in realities revealed through the peer-reviewed research, he made it a cardinal principle of Buy-and-Hold that Buy-and-Hold would CHANGE over the years as new realities were revealed.

This is why I call those who post in “defense” of Mel Linduaer “Lindauerheads” rather than “Bogleheads.” If they were truly Bogleheads, they would be in favor of permitting honest posting on the last 36 years of peer-reviewed research. I am 10 times more of a Boglehead than Mel Linduaer is. Lindauer is a Lindaurhead, not a Boglehead. Now, the sad reality is that Jack Bogle himself is today more of a Lindaurhead than a Boglehead. That one is a strange twist. But in fairness to Lindauer, I think I have to acknowledge that that is the reality today. But I am still a proud Boglehead. I love the Jack Bogle who argued in his books that investors should root their investing strategies in the peer-reviewed research, not the one who allows his name to be used at a board at which the sorts of individuals who have put up posts in “defense” of Mel Lindauer are permitted to post.

It makes no sense to encourage investors to adopt Buy-and-Hold strategies while denying them access to the discussions of the last 36 years of peer-reviewed research that they need access to to be able to follow Buy-and-Hold strategies effectively for the long term.

That’s my sincere take re these terribly important matters, in any event.

Rob

 

Poster at Sub-Reddit on Financial Independence: “Let’s Bring Hocus Here for an ‘Ask Me Anything'”

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A community member named “Curious Carl” put up a comment here on September 3, 2017, saying: “Your name was brought up over on a reddit board for FIRE-minded folks and it ignited quite the firestorm! Some people were wondering if you’d be willing to go over there for an AMA (Ask Me Anything). Are you familiar with that format? The board is located here: https://www.reddit.com/r/financialindependence/ I responded that I would be thrilled to participate in an “Ask Me Anything” session at Reddit and asked Carl if he knew who I needed to contact to make it happen.

I did a search for recent threads at the Financial Independence sub-reddit that mentioned my name and turned up this thread: https://www.reddit.com/r/financialindependence/comments/6w54a9/great_fire_page_from_1996/

The text of the section of the thread that mentions my name is set forth below:

[–]william_fontaine[insert humblebrags here] /r/FI’s Official Avocado Analyst[?] 13 points 

You know it’s old when they reference Bogleheads board as “a hocus-free forum”. That’s one of the reasons it was originally created over 10 years ago, as the first BH post of all time mentions, to get away from hocus who was always trolling on the Morningstar forums.

LOL this site even has an image that used to advertise his absence.

[–]frugalmaverick 6 points 

He’s still around, goon!

http://arichlife.passionsaving.com/

[–]william_fontaine[insert humblebrags here] /r/FI’s Official Avocado Analyst[?] 3 points 

I wear the goon badge with pride.

[–]frugalmaverick 2 points 

The Hocomania is still as strong as ever. Here’s a snippet from the wall of tl;dr that Hocus leaves in the comments below his own blog posts:

I bring up the prison sentences from time to time because I want there to be as few prison sentences as possible and I want the prison sentences that we see to be as short as possible. I spoke out in favor of banning John Greaney way back in June of 2002. I wrote to the site administrator of Motley Fool asking that he take care of that. I got an e-mail in response thanking me for my “thoughtful” argument and telling me that it would be “ideal” if Greaney permitted honest posting on retirement planning at a retirement planning board. Yes, it would indeed be ideal, wouldn’t it? The problem is that the site administrator had a button that he could push to make Greaney go “Poof!” and I did not have access to that button. It was part of his job responsibility to push that button at appropriate times and he failed to carry out that job responsibility and so here we are 15 years later in the mess that we are in today.

[–]throwaway83659 2 points 

Let’s bring Hocus here for an AMA.

[–]frugalmaverick 13 points 

I found that page after running into Rob “Hocus” Bennett. He is a failed early retiree, self-published author of “Passion Saving”, and a mentally ill personal finance blogger. The retire early homepage has some good material on Rob Bennett but most of it is outdated. There’s also a separate forum dedicated to following Rob Bennett that is more current.

[–]SteveRD1 4 points 

Mentally ill?

I’m not familiar with the guy – are you actually saying he’s mentally ill, or simply implying his ideas on personal finance are BS?

[–]frugalmaverick 26 points 

He’s been telling people who disagree with him that they will be going to prison and that he’ll be getting some big settlement after the inevitable crash. He says that even though his work is worth much more, he’ll generously settle for some sum that’s close to a billion dollars. He believes that he has conducted historic, Nobel Prize-worthy research and that it is the “buy and hold mafia” and “goons” who are keeping his research suppressed.

Edit: Just look in the comments below this recent post. Notice the mention of a prison sentence? Hell, read his top ten list in the blog post!

[–]SteveRD1 25 points 

Damn, that’s some Presidential level behavior right there.

[–]BenR1ghtBack[28M NYC, 75% SR, 20% leanFI] 3 points 

Wowza, guess they’re letting just anyone have a blog these days.

Buy-and-Hold Goon to Rob: “The Stock Market Pre-1975 Has No Relevance to Today. Those Were Horse-and-Buggy Days.”

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

“But there’s a big difference between something being so “at least since 1975? and something being so for the entire history of the stock market.”

The stock market pre-1975 has no relevance to today. Those were horse and buggy days. Stocks were on paper certificates. No internet, hardly any mutual funds, no index funds. The few computers that existed ran on punch cards.

No, I’ll stick with what works now. I’m calling it GPI (Gold-Platinum Indexing.) The peer-reviewed paper discussed in that article was written by a real professor. It has lots of numbers and charts and funny math symbols. So it must be right. Any goons with me? Only takes one to double the number of VII followers.

Rob, when I take over Bogleheads I’ll be sure to mention that the GPI movement started on your site.

Okay, Anonymous.

If I believed that the stock market pre-19775 had no relevance today, I would be a Buy-and-Holder too.

I don’t believe that. I look to the entire market history for guidance re what works.

But I certainly don’t take it personally that you hold a different belief. God made both chocolate ice cream and vanilla ice cream because the earth is inhabited by people who come to have confidence in different sorts of takes on things. It’s always been chocolate for me, man. And I’m right about that one, of course. Chocolate is obviously and truly superior! But if you prefer vanilla, I wish you the best of luck with it all the same and consider you a goofy, sort of mixed-up friend.

Please take good care.

Rob

“Bogle Needs to Address the Blame Issue in a Public Statement That Is Written Up on the Front Page of the New York Times. A Public Statement By Bogle Will Put All the Nasty Stuff in the Past Where We All Want It. From That Point Forward, We Will All Be Able to Engage in Fun and Exciting Discussions About How Stock Investing Really Works.”

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

You said “Greaney” sixteen times in that one comment. This is not what healthy people do.

It’s not just Greaney, Anonymous. Please feel free to quote me re that one. There is no one individual so powerful that he could do so much harm to a society. It is not just Greaney and that one is not even remotely a close call. That’s the sort of thing that I intend to say in the days following the next price crash to help out my friend John Greaney.

Greaney didn’t do this by himself. And we don’t know how we would have reacted in similar circumstances. Greaney is an engineer and engineers care deeply about getting the numbers right; they take a justified pride in it. So the pain he felt when he was publicly embarrassed (it was not my intent to embarrass him but that was clearly how he felt) was acute. The full reality is that Greaney’s study was top-notch stuff. I gave it a 5-star review and he merited that. Greaney’s understanding of the safe withdrawal rate was miles ahead of Peter Lynch’s understanding of the safe withdrawal rate and Lynch was paid millions to manage a big mutual fund.

And ALL of us participated at least in some small way in this massive act of financial fraud. I held back from saying what I knew about safe withdrawal rates for three years. So in a technical sense I was guilty of financial fraud too. A lot of cognitive dissonance has been evidenced in this story. By no stretch of the imagination am I seeking to put this all on Greaney. I very strongly OPPOSE that sort of take.

I refer to Greaney in my explanations because it is important to get basic facts right. Greaney was the first individual to get abusive. There were other Buy-and-Holders who got abusive on the morning of May 13, 2002. But Greaney was a leader at the Retire Early board. Those people looked to him for signals re how to behave. If he had said in response to their abuse “Wait a minute, Rob is making an interesting point, I would like to talk this through a bit and see if we can so some good with it,” those others would have cooled it. When one becomes a leader in a community, one takes on added responsibilities. Greaney sent very bad signals when he advanced death threats. It’s not possible to make complete sense of the story without speaking clearly and firmly about the negative role that Greaney played.

Those early days of the discussions were very important. We are not able to say where we would be today had Greaney played it in a different way. But my guess is that we would be in a very good place. My understanding of how safe withdrawal rates work was limited at the time. Had we as a community taken a different path, we would have been combining the knowledge held by lots of different people and thereby generating some amazing insights. I think we would be in a very good place today had we chosen that path. Greaney was the primary force seeing that we got on a bad path instead. There were hundreds of community members whose first reaction to my famous post of the morning of May 13, 2002, is that it had started the most amazing discussion ever held at that board. People were open to enjoying a great learning experience. Greaney and those who followed his signals made that impossible and things went downhill from there.

I mentioned Bogle also. Bogle has never put forward a death threat. So why do I mention him as well? It’s because of that responsibility thing that I noted above in regard to Greaney. Bogle is far, far, far, far less abusive than Greaney. But he is also in a position of far, far, far, far greater responsibility. So Bogle played a negative role. Bogle could have shut Greaney down when he learned about the controversy (when it traveled to the Bogleheads Forum). That would have taken us off the bad path chosen by Greaney and put us on the good path that Greaney could but did not elect. By failing to speak out in opposition to Greaney’s tactics when he learned of them, Bogle took us farther down the dark path that Greaney (and Lindauer) had chosen before him. So Bogle also played a big role.

I don’t believe that Bogle would have chosen the dark path if the question had been presented to him in a fresh manner. By the time Bogle weighed in, Greaney and Lindauer had already poisoned the discussions. So Bogle faced a high percentage of a board population that was positively enraged about the situation. And of course they were enraged about something that Bogle himself believes in. In fairness to Bogle, this put him in a tough spot. If he came out in support of following the law, he would be viewed by many insanely angry board members as coming out in support of this Rob Bennett fellow, who was in the process of “trashing” (not really, but that’s how it was seen) all that Bogle stood for. As with Greaney, there are two sides to the Bogle story.

The biggest problem that we are dealing with is the cover-up problem. If we had taken the good path on the first day, there would have been disagreements. People just do not agree on these matters. But there also would have been good fruit and people on both sides would have been enjoying the learning experience. It’s important to remember that Shiller was awarded a Nobel prize for his “revolutionary” (his word) research findings of 1981. As a society, we are highly skeptical of Shiller’s findings; the idea that stock returns can be effectively predicted 10 years in advance when they cannot be effectively predicted 10 weeks in advance seems fantastical. But we also respect the work that Shiller has done because of its obvious potential to make all of our lives better in the event that it is explored in depth and checks out as valid.

So I don’t think that Bogle is necessarily inclined to shut down discussions in the right circumstances. Shiller’s findings really make all of Bogle’s genuine contributions 10 times more important. So there is no reason why Bogle would be opposed to moving forward if he were thinking clearly about these matters. I believe that the way in which the issue was put before him hindered his ability to think clearly.

In the early days, I didn’t have the peer-reviewed research that Wade Pfau and I co-authored to point to. If I had had that research at the time, I would have won the debate in 24 hours and it would have come to a successful conclusion. The reality is that I didn’t have it. I did the best I could to present the ideas in an effective manner but the cold reality is that the ideas just were not sufficiently developed at the time for me to be successful. So everything should have flipped when Wade and I published our research in a peer-reviewed journal, right?

Yes, that’s what SHOULD have happened. Why didn’t it?

It didn’t happen because the cover-up had been going on for years at that time and those who had posted in “defense” of Greaney and Linduaer and Bogle were afraid that they would be going to prison if the story got out. This matter is no longer one where there are just intellectual differences of opinion. People on one side are looking ahead to long prison terms. That makes people very, very, very reluctant to permit free and open debate. That’s our primary problem today. That’s why I often make reference to the upcoming prison sentences. We cannot take this to a good place unless we are willing to face the true obstacles in our path and the biggest obstacle today is the concern over upcoming prison sentences. So we need to speak about that aspect of the question no matter how distasteful we all find it to consider the matter.

You raise a concern that I refer to Greaney too often and the issue that you are getting at when you do so is the issue of BLAME. I possess no desire to blame Greaney or anyone else. So you have an ally if you are looking for one as part of a project to set things up in such a way that Greaney and lots of others avoid being assigned excessive blame for what has happened. You don’t have to persuade me. I am on board. My job is to pull everyone together and the biggest obstacle to realizing that dream is the concern that many feel over being assigned too much blame. Show some spirit of cooperation and we will be able to address the problem in at least a somewhat satisfactory way. Continue the delay tactics and you make it worse and worse and worse and worse.

The problem with cover-up is that they can be exposed. Then you find yourself needing to cover-up the cover-up. And next it is covering up the cover-up of the cover-up. And so on. We have 50 levels of cover-ups holding back progress re these matters. We would all like a do-over. But there are no do-overs. So our job is to put our heads together and come up with the best means of passage forward for every single person involved. We ALL should want to achieve that. We ALL should be working to achieve that goal.

The good news is that cognitive dissonance is a real thing and this has been shown in the psychological literature very clearly. And this is not a case where one or two evil people engaged in evil acts. This is a case where literally the entire society participated in some way in the massive act of financial fraud. I participated myself for three years. That’s powerful testimony for those seeking to make a case that assignments of blame should be restrained.

And the potential intellectual breakthroughs are just off the charts. The research that I co-authored with Wade shows how to reduce the risk of stock investing by 70 percent. This is not like the Madoff case in which you had thousands of people who were very angry to learn that their retirement accounts had been wiped out. This is a case where generations of people will be able to invest with far less stress than has ever been possible before and will be able to retire many years earlier than has ever been possible before. When the millions of people who are affected by the bad stuff hear that side of the story, their anger may be diminished and they may respond in a different manner than the Madoff investors responded. We should at least hope so. We should at least all be doing all that we can to make it so.

Bogle needs to address the blame issue in a public statement that is written up on the front page of the New York Times. I have some ideas re what should be said in that statement which I have referred to in outline form in this comment. But it will not be my statement, it will be Bogle’s statement. He needs to develop it in consultation with all of the many people who will be affected by it. A public statement by Bogle will put all the nasty stuff in the past where we all want it. From that point forward, we will all be able to engage in fun and exciting discussions about how stock investing really works.

I am happy to help with the statement if there is a feeling on the other side of the table that that would be helpful. I am also happy to let others craft it and just keep my nose out of things that are not entirely my business. Bogle needs to be able to live with the statement and all the people on his “side” need to be able to live with it. I will be 100 percent cooperative. So long as the statement is even remotely honest, I will endorse it regardless of how much it attempts to spin things in the favor of the Buy-and-Holders. I am obviously not going to say that Greaney’s study contains a valuation adjustment or deny that there is 36 years of peer-reviewed research showing that a valuations adjustment is required. But I am not going to be seeking to win points. My aim is to get us all on a positive path going forward. I love my Buy-and-Hold friends. I want them to feel good about where things are headed.

Does that help?

Rob

Buy-and-Hold Goon to Rob: “If You Had to Name the Top 10 Investing Thought Leaders Today, Who Would Be On That List and How Would You Rank Them?”

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

If you had to name the top 10 investing thought leaders today, who would be on that list and how would you rank them?

1) Robert Shiller (Nobel prize winner despite having failed to take his meds for over three decades now)

2) Jack Bogle (it was Bogle’s book that revealed to me the errors in the Buy-and-Hold retirement studies, making possible the post that kicked off The Great SWR Debate)

3) John Walter Russell (no longer with us in person but the many powerful insights explored at his web site remain available to all open to an amazing learning experience)

4) Warren Buffett (Buffett and Bogle go together like chocolate and peanut butter — the dreamy result is a concoction going by the name of “Valuation-Informed Indexing”)

5) Rob Arnott (this guy has balls — there’s precious few in this field that one can say that about — balls matter)

6) Jeremy Siegel (I do not agree with many of his conclusions but I see great power in his approach of focusing on analysis of the historical return data, an approach that he has popularized more than anyone else around)

7) Bill Bernstein (Chapter Two of his book “The Four Pillars of Investing” is the best concise explanation of why Valuation-Informed Indexing is the future that I have discovered)

8) Andrew Smithers (brave, smart, patient, kind — all of the big human virtues bundled together in one wonderful human being — can he be real?)

9) Wade Pfau (someday gonna see that this fellow is awarded the Nobel prize that he has very much earned with his fine research despite the “confusion” of recent years)

10) That fellow with 340 columns at the Value Walk site on this crazy Valuation-Informed Indexing concept that we all keep hearing about from time to time while we try so hard to force the idea out of our consciousness, I can’t quite recall his name, I think I have blocked it out because he makes me so freakin’ angry that I just want to reach through the computer screen and strangle the guy’s neck)

Humble Rob

“100 Percent of the Data Supports Valuation-Informed Indexing, 0 Percent of the Data Supports Buy-and-Hold”

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

There is no data that challenges my beliefs, Anonymous. 100 percent of the data supports Valuation-Informed Indexing, 0 percent of the data supports Buy-and-Hold.

I wish it weren’t so. If 10 percent of the data supported Buy-and-Hold, we could have fun arguing our different positions and you could learn from me and I could learn from you. But when 0 percent of the data supports your position, you are in a tough spot. That’s why we see death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. You ain’t got nothing else.

I didn’t do that to you, Anonymous. It was Jack Bogle who did that to you. He should have come clean when Shiller published his “revolutionary” (Shiller’s word) research. And, if Bogle was suffering too much from cognitive dissonance to do so, those who love him should have helped him out by asking him to address Shiller’s research and explain what changes he believed needed to be made to the Buy-and-Hold strategy to bring it up to date with the new research. You have a beef with everyone who failed to do that. You have no beef with me. I have done that.

Buy-and-Hold was a mistake. It was based on research that was published in 1965 and then discredited in 1981. When your strategy is discredited, you need to update it. Or else you need to stop claiming that the now-discredited strategy is supported by the peer-reviewed research. Once peer-reviewed research is published showing that there is precisely zero chance that a strategy could ever work for even a single long-term investor, claims that that strategy is supported by the peer-reviewed research become a lie.

That’s my sincere take re these terribly important matters, in any event.

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

Rob

“If I Had Showed Investors How to Reduce Investing Risk by 10 Percent, I Would Be on the Cover of Time Magazine. The Problem With Showing Them How to Reduce Risk by 70 Percent Is That It Makes the Buy-and-Holders Look Bad. That’s the Only “Problem” With What I Have Done, I showed the Way to Too Big an Advance in Our Understanding of the Realities. What a Bad, Bad Boy, You Know?”

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Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

Seriously, Rob. It is like saying you look forward to joining Lebron James in winning an NBA championship. Your life is just an internet fantasy.

You’re entitled to your opinion, Sammy. But I would by lying to you if I told you that I share it.

I have had many big names tell me how important my work has been to them. Wade told me that he learned many things from me that he never learning getting his Ph.D. in Economics at Princeton. Somebody doesn’t just say that for no reason. Rob Arnott told me that my site was top notch. He is a giant in my eyes. Again, there would be no reason for him to say something like that unless he meant it. John Walter Russell though that my ideas were so important that he devoted eight years of his life to doing research to showing that the historical data supports everything I say. How many people have ever given up eight years of their life to research your ideas, Sammy? John was the most respected numbers guy in the history of the Retire Early community and he thought that his stuff was gold (and he came to that conclusion only after doing lots of skeptical research that won him over).

There are lots of others. Carl Richards LOVED my stuff. He banned me from his site because his readers were complaining that my stuff was so different from what they had been told by the Buy-and-Holders and yet so well-argued and so well-researched that it was upsetting them. But he told me that personally he thought that my web site was the #1 investing site on the internet. How often does that happen, that someone gets a fan letter from a site owner who has banned him? There’s something odd going on when something like that happens.

Lots of bloggers have told me similar things. Mike Piper is the biggest Buy-and-Hold fan that there could be. But he thinks that my stuff is of HUGE value. He banned me too. But he hated, hated, hated doing it. He came close to agreeing to let me post one article a month at his site. He wanted his readers to know about my work because he thought it was so important. But he was losing readers by letting me post at his site because my stuff was just too threatening to Buy-and-Holders, which comprise his entire readership.

Bill Schultheis is another one. When he discovered my site, he was raving about it. He too is a big Buy-and-Hold guy. But in a way that makes him a natural for Valuation-Informed Indexing. He learned at the Bogleheads Forum that i am “controversial” and then he got quiet. But on an intellectual level the guy just loved learning new stuff and, until it was made clear to him that there would be a price to be paid for expressing his sincere views, he couldn’t help but say how grateful he was to learn some new realities.

I could go on an on and on, you know? You already know most of what I am saying. You were there too for most of it. And of course you also testify to the importance of my work with every harassment post that you advance. You wouldn’t do that if you didn’t see Valuation-Informed Indexing as a threat to your beliefs about how stock investing works. What makes you see it as such a big threat? It’s the fact that it is the first true research-based strategy, the first strategy that incorporates both the pre-1981 research (as Buy-and-Hold does) AND the post-1981 research (that the Buy-and-Holders have elected to ignore so that they don’t need to acknowledge the possibility that they are humans and thus capable of making a mistake).

This is a big deal, Sammy. There are millions of middle-class people who need to provide for their retirements somehow. They need access to accurate and honest reports of what the peer-reviewed research in this field really says about how stock investing works. I provide it to them. The peer-reviewed research paper that I co-authored with Wade shows that by the simple act of becoming open to changing their stock allocations in response to big valuation shifts, investors can reduce the risk of stock investing by nearly 70 percent. If I had showed investors how to reduce investing risk by 10 percent, I would be on the cover of Time magazine. The problem with showing them how to reduce risk by 70 percent is that it makes the Buy-and-Holders look bad. That’s the only “problem” with what I have done, I showed the way to too big an advance in our understanding of the realities. What a bad, bad boy, you know?

I wish you all good things, Sammy. But come on.

Rob

 

“It Certainly Is True That the Market Has Always Gone Up and Down. But the Downs Cause Us Bigger Problems Today Because Millions of Middle-Class People Need to Finance Their Own Retirements and the Downs Throw All Their Numbers Wildly Off When It Is Too Late in Their Lives For Them to Make Up for the Losses. So the Huge Losses That Have Been Typical in the Market in the Past Are No Longer Acceptable.”

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

“Nobody here has ever missed a meal”

That’s great, but frankly it’s not saying much. Even homeless people get regular meals. The real question is whether your family truly agrees with your course of action. I don’t recall you saying that they do, or that you ever even asked.

I’ve certainly asked. There have been lots of conversations about it. And I have written here about my wife’s feelings about the matter on more than one occasion.

My wife accepts that my work has great importance. She knows that I am honest. She knows about the things that John Walter Russell and Wade Pfau and Rob Arnott and hundreds of others have said about my work. And she knows what an internet Goon is. So she gets the basic picture and we are in agreement that far.

The fact that money has not been coming in for 15 years scares her. I think it would be fair to say that we do not see eye to eye re that one.

I see her reaction as being similar to the reactions of lots of others. Wade Pfau’s reaction is similar in many respects. He gets it that the Buy-and-Hold retirement studies are dangerous; they do not tell the people planning retirements what they need to know. Wade has said that on many occasions. He even wrote to the authors of the Trinity study asking that they correct their study. So Wade gets it.

But then again he doesn’t. Wade is no longer contacting the authors of Buy-and-Hold retirement studies seeking corrections. He is not even asking that the Bogleheads Forum be opened to honest posting. He is not seeking to get the research paper that he co-authored with me written up on the front page of the New York Times. So — Wade DOESN’T get it.

He gets it and he doesn’t get it. At the same time! The same person! That’s where we are today, Anonymous.

That’s my wife. She gets it and she doesn’t get it. At the same time. The same person. That’s where we are as a people.

I spoke with an acquaintance of mine about these general issues a week or two ago. He has every reason to take my side and he certainly did not want to endorse the behavior of you Goons. At one point, I mentioned something you Goons did and his face had a look of intense distaste. So he is not biased against me, he is if anything biased for me. But his conclusion was: “The stock market goes up and the stock market goes down — it always has!”

That’s what you might call a philosophical attitude. Does this fellow get it? Or does he not get it?

It is my view that he does NOT get it. It certainly is true that the market has always gone up and down. But what he is missing is that the downs cause us bigger problems today because millions of middle-class people need to finance their own retirements and the downs throw all their numbers wildly off when it is too late in their lives to make up for the losses. So the huge losses that have been typical in the market in the past are no longer acceptable.

Fortunately, Shiller’s research shows us how to avoid both the ups and the downs. But we cannot talk about Shiller’s research because the Buy-and-Holders didn’t know about it when they developed their strategy (he hadn’t published it yet!) and it makes them feel bad to acknowledge not always having known everything there is to know about the subject. So each day we drift closer to the edge of the waterfalls and all of us who see what is happening keep it to ourselves if we know what is good for us.

This guy thinks he gets it. And he is a smart fellow and a nice fellow and an unbiased fellow. Yet he does not get an important part of the story. He intellectually is capable of getting it. But emotionally he cannot accept what has happened. It is an incredible story. What I am saying is that most of the biggest-name experts in the field — good and smart people — are giving dangerous advice and aren’t even aware that they are doing it. This fellow tunes this out and just retreats to his philosophical stance — the market goes up and down, it always has and it always will.

That’s what I am up against. That’s a different version of my wife’s take. She knows me. So she knows that there is merit to much of what I am saying. But there are elements to this story that are hard to swallow. There’s a thing called “cognitive dissonance.” When a story is too hard for the humans to swallow, this cognitive dissonance thing kicks in.

I believe that the next price crash is going to bring the cognitive dissonance to an end. It is one thing to read peer-reviewed research showing that the continued promotion of Buy-and-Hold is going to put us in the Second Great Depression. It is something else to see with your own eyes the human misery that that entails. I believe that the next price crash will shock the cognitive dissonance away. I don’t have much choice. If I didn’t believe that, I couldn’t get out of bed in the morning.

Maybe I will be proven wrong. I am not God. I have gotten things wrong before. I cannot say with certainty that it is not in the process of happening again.

But what would you have me do? Every piece of evidence that we have seen for 15 years now has supported the peer-reviewed research of the last 36 years. Shiller says that investing is a highly emotional activity and the Buy-and-Holders have let their emotions run wild to the point of threatening to get academic researchers fired from their jobs if they continue to produce honest research. I have developed a funny feeling over the years that this Shiller fellow might be on to something. And you don’t need to have an I.Q. of 140 to see that, if this Shiller fellow is on to something, continued promotion of Buy-and-Hold is going to leave us all in a very, very, very scary place.

So I do what I have to do, Anonymous. You make it sound like a father’s ONLY responsibility is to bring in the bucks. That’s one important responsibility and I have honored it well for 25 years of marriage now. But that is not my only responsibility. If I wake up in the middle of the night and see that the house is on fire, I have a responsibility to bring my family members to safety. I cannot just lay in bed and tell myself “Hey! I bring in a steady paycheck! Let someone else handle the darn fire problem!”

Our economic system is on fire. Things have reached a point where the fire is beginning to spread to our political system. I have responsibilities in that regard too. So I am doing what I can. We have to find a means to work around you Goons and get honest and accurate reports of what the last 36 years of peer-reviewed research tells us about how stock investing works to the millions of middle-class investors who very much want it and need it. That’s my job. I have been elected to carry out the task. So I intend to carry it out to completion.

That’s the deal, Anonymous. I talk to my wife about it frequently. We are not in complete agreement. That makes it harder to do the job. But the job must be done successfully all the same. The survival of our economic and political systems is no small thing. SOMEONE sure has to do this job? Do you see anyone else stepping up to the plate? No, me neither. That’s why I am leading the charge.

I hope that works for you.

Rob

“Crashes Hurt Much More Than You Would Think They Would. They Have a Counter-Intuitively Big Negative Impact on Long-Term Portfolio Growth. It Is Amazing How Far Behind the Valuation-Informed Indexer Can Be and Still Come Out Ahead.”

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

You stated 2016 as the absolute latest date before you started seriously reevaluating your position. Well 2016 has come and gone and it looks like you have changed nothing.

Yes, it matters when the crash date is. For example, if it is in 2020 instead of 2010 then 2012 then 2014 then 2016 then doesn’t really matter you could spend an extra decade in a thriving market instead of sidelined waiting for a crash. If your market timing gimmick can’t predict within the correct decade it is worthless.

My prison sentence will be never.

I don’t have precise recall re what you are saying that I said re 2016 being “the absolute latest date.” I have a vague recollection that there may have been a date that I gave that after which I said that I would need to re-evaluate. I try to re-evaluate all the time. I believe very strongly in Valuation-Informed Indexing. I believe it is the future. But I also believe that every one of us humans is flawed, obviously including myself. So I do think think there’s a need to question one’s self. That’s why I interact with you here, Anonymous. You are giving the other point of view. You are challenging my thinking. That part of our interaction is part of a healthy process.

No, I haven’t changed my beliefs. I still believe that Valuation-Informed Indexing is the future. I don’t want to stop questioning, I don’t want to stop re-evaluating. Doing that helps me to learn new things. So I need to continue doing that. But you are correct that my confidence is probably greater today than it has ever been.

The question you raise in your second paragraph is an important one. I don’t agree even a tiny bit with your conclusion that “if your market timing gimmick can’t predict within the correct decade, it is worthless.” I suspect that this impression you have is at the core of the dispute. I can see how intuitively it might seem that that is the case. The numbers do not back up what you are saying, not at that extreme. I know because i have done hundreds of runs with the Scenario Surfer. There have been many occasions where I made an allocation change thinking that valuations were such that I would see a payoff within a limited amount of time and then the payoff was denied for many years and yet ultimately I ended up with a bigger portfolio than I would have had following the Buy-and-Hold strategy. Crashes hurt much more than you would think they would. They have a counter-intuitively big negative impact on long-term portfolio growth.

We need more research on this question. I asked John Walter Russell to look into this question and he did a little bit of work in this area a long time ago. But he died before he was able to produce results that I considered definitive and compelling. So we need someone else to take up the ball. You are right that there is some risk in remaining with a low stock allocation for an extended period of time. This is one of the big risks of Valuation-Informed Indexing, that we don’t know what return scenario will come up and some will provide better results than others and that you can get locked out of the market for extended periods of time by following a valuation-informed strategy. So I do see this as an important area of inquiry.

Our disconnect re this question results from the fact that your conclusion is based on a gut reaction rather than an analysis of the numbers. I don’t have a solid analysis of the numbers to point to either. But I do have experience with the Scenario Surfer, which is the best tool that I know about to simulate the possibilities. It indicates that the issue that you are pointing to is real. In fact, in about 10 percent of cases, the Buy-and-Hold strategy produces better numbers at the end of 30 years. I have run scenarios where that has happened. So I believe this is real.

But it is amazing how often the opposite is true. It is amazing how far behind the Valuation-Informed Indexer can be and still come out ahead in the end. There is a counter-intuitive power to this that you are missing. Also, you need to include a consideration of risk in your analysis. In those rare cases in which the Buy-and-Holder ends up ahead, he ends up only a little bit ahead while the Valuation-Informed Indexer usually (not always) ends up far ahead. It might be that there’s some crazy scenario where things would not end up that way. I don’t think we have enough data to rule out that possibility. But we have enough data to say that the possibility is a bit remote. It is certainly not the likely case.

Please look at the return scenario that we are seeing play out today. You Buy-and-Holders have a way of suggesting that Buy-and-Hold has done well in recent years. It has not done at all well for the entire 20 years since prices first reached insanely dangerous levels in 1996. From 2000 forward, Valuation-Informed Indexing is ahead. That should never happen under the Buy-and-Hold theory. IBonds, a risk-free asset class, have beaten stocks for close to 17 years running. That’s just not supposed to be possible. But it obviously IS possible since it just happened. That reality should cause all Buy-and-Holders to stop and think for a moment. Buy-and-Hold is ahead going back to 1996. But not by much. Add in a risk factor of 2 percentage point (say that it is worth 2 percentage point of return to be in a risk-free asset class rather than in a high-risk asset class) and Valuation-Informed Indexing beats Buy-and-Hold from every possible starting date in recent history. Wow!

That’s BEFORE factoring in the effect of the next price crash, Anonymous. Factor in another crash and then all the many years of compounding losses that will result from it for the Buy-and-Holders and there is no comparison between the two strategies. Valuation-Informed Indexing is going to end up pulverizing Buy-and-Hold once again, just as it has been doing for the entire history of the market up until now. All signs from the real world point to that ultimate result.

I want to be able to make stronger research-based claims re this particular aspect of the question. I would like to have available to me research that would permit me to say that “even if the P/E10 value remains above 20 for five more years, the odds of Buy-and-Hold prevailing in the end are less than 20 percent” or whatever. I cannot be that precise in my claims today. The data is there. I just don’t know that I have the statistical abilities to work the numbers in the way that they need to be worked to make accurate and precise claims re this question.

I sure would like to be able to do so. If you Buy-and-Holders were thinking clearly, you would want to know precise answers to the question you are raising here too. You would make it happen. With all those people who post at the Bogleheads Forum, you could get this research done. You should be working that hard. We all should be working together to make that happen. And we should not be trying to prove a point when we go about doing it. We should be trying to LEARN. We all need to learn the REALITIES re the question you raise here. Bogle should be leading this effort. I am not being funny. He started Valuation-Informed Indexing. He should be working hard to show how powerful a strategy it is. If he were thinking clearly today, he would be leading this effort today.

Those are my sincere thoughts, Anonymous. I do agree that prices have remained high much longer than I thought they would. You are right on re that one. And it is an important reality. I do believe that there comes a point when prices remain high so long that Valuation-Informed Indexing begins to lose appeal as a strategy. But everything that I have seen indicates that that time-period is much longer than those who jump to a quick conclusion without studying the numbers closely would first imagine. You have to dig into the numbers and think things through carefully to come to learn the reality and, if you do this, I am confident that you are going to modify your thinking a bit. Probably not enough to be in full agreement with me. But I am confident that, if you look at this question in a serious way, you will modify your thinking at least a bit. It is looking at this sort of thing that impressed me so much and that over time has made me a strong believer in the Valuation-Informed Indexing concept.

Super question. I AM going to try to force myself to continue to re-evaluate. That is important. That is what I ask my Buy-and-Hold friends to do and so that is something that I need to do as well. But I have not been coming to the conclusions that you seem to think that I should come to when I perform my re-evaluations. For me, the case for VII keeps getting stronger. Yes, prices have remained high for a longer time than I once thought at all likely. But the odds that VII will in the long term absolutely kill Buy-and-Hold remain very strong according to every fair-minded analysis that I have looked at. I myself would not have expected that to be the case once upon a time. But I believe in looking at the numbers. And that is indeed what the numbers say (at least according to my own assessments of them).

We’ll see about the prison sentence. I believe that we are just going to have to let thing play out to see how that one goes. My belief re this one is not the same as yours. But I am rooting for you. And you never know, right? Crazy things happen in this mixed-up world of ours from time to time.

I hope that helps a bit, my good Buy-and-Hold friend.

Rob