A Rich Life

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

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“You Need to Watch MoneyBall. Things Change. People Learn New Things. Those Who Have the Most Invested in the Old Understanding Are the Least Open to the New Understanding.”

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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:

We know what Bogle thought.  You do as well. We remember you calling Bogle a Con-man.  We remember you wanting to attend a Bogleheads meeting so that you could troll him.  You have no credentials.  You lack any formal education in the field.  You have a failed retirement.  It’s like some kid in middle school who thinks he should be able to teach the New York Yankees how to play baseball.

You need to watch MoneyBall.

Things change. People learn new things. Those who have the most invested in the old understanding are the least open to the new understanding.

Rob

“Why Hasn’t the Study Been Corrected? That’s the Question That Any Reasonable Person Would Be Asking.”

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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:

Here is a similar thread on Bogleheads:

https://www.bogleheads.org/forum/viewtopic.php?t=269041

Notice that no one calls it a threat. Financial boards are a community and everyday topics are covered, yet no one makes up silly stories like you. This is yet another example of your bad behavior and why you are banned.

The purpose of the gun thread at the Motley Fool board was to intimidate people who were trying to work up the courage to stand up to Greaney. I had pointed out the error in the Greaney study and he had flipped his lid and everyone could see that he was losing control. And then this thread appears talking about guns and bullets and how to put them to us solving problems you face.

Why hasn’t the study been corrected? That’s the question that any reasonable person would be asking. That’s the substance question that should be the focus on any discussion of this matter.

And of course the gun safety thread was not the only time Greaney advanced a death threat. There was another thread where Galeno (Greaney’s right-hand man) said that he was going to come to my house with a baseball bat. “Let loose the dogs of war,” Galeno said. Some of the more ethical members of the community announced at that time that they would be leaving the board because they no longer felt right about participating in a corrupt enterprise. Greaney heartily endorsed the threats. He thought it was funny. That’s what we are dealing with here. And of course there were the threats made to silence Wade Pfau that were made at a later time. Wade and I performed that research to help millions of people. We should be able to reach those millions of people with it. There should be no “controversy” over that.

If Greaney truly believed that he had included a valuation adjustment in his study, he would have welcomed questioning of it. There never would have been any freak-out.

Rob

“I Would Like to See Us All Working Together Every Day to Bring the CAPE Level Down to a Reasonable Level and to Keep it There.”

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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:

“ Never before has the CAPE value risen so high and then remained at insanely high levels for so extended a period of time. ”

In short, stock went up way more than what you predicted.

Stock prices rose higher than I expected and remained at high levels longer than I expected. That much is certainly so.

The point of dispute is — Was that a good thing for stock investors or a bad thing?

If the market is efficient (as it was widely believed to be in the days when the Buy-and-Hold strategy was being developed) it was a very good thing. If the market is efficient, then the stock prices reflects a reasoned assessment of the realities. A high stock price results from a high level of productivity. High levels of productivity permit us all to live better lives. So we all should rejoice when stock prices rise.

If valuations affect long-term returns (as Shiller showed with his Nobel-prize-winning research), it was a very bad thing. If valuations affect long-term returns, any price increases beyond those justified by the economic realities (that is, any price increases beyond those that produce a fair-value CAPE level of 17) are the product of investor emotionalism and will not last. They are the product of irrational exuberance. Price increases that do not last are a negative because they mislead investors as to the amount of their accumulated wealth. They cause them to save less and to spend more than they can afford to spend, They bring on failed retirements and business failures because consumer spending contacts when millions of investors suffer the price crash that inevitably follows a period of out-of-control irrational exuberance.

I prefer to know the true value of my stock portfolio. I think we should be permitting honest posting re the last 41 years of peer-reviewed research at every site on the internet, without a single exception. I view the last 41 years of peer-reviewed research in this field as the most important 41 years of peer-reviewed research in the history of investment analysis. I would like to see us all working together every day to bring the CAPE level down to a reasonable level and to keep it there.

My best wishes to you, Anonymous.

Rob

“The Last 26 Years Has Been the Worst Time to Invest in Stocks in the History of the United States. Never Before Has the CAPE Value Risen So High and Then Remained at Insanely High Levels for So Extended a Period of Time.”

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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:

Tell us about your track record of investing over the last 2 decades.  What has your rate of return been?

The last 26 years has been the worst time to invest in stocks in the history of the United States. Never before has the CAPE value risen so high and then remained at insanely high levels for so extended a period of time. Certainly those years should be taken into consideration by all investors seeking to determine their stock allocation. But to look solely at the past 26 years of stock-market history while ignoring entirely the 126 years of stock market history that occurred before this time-period when Get Rich Quick/Buy-and-Hold got entirely out of control makes no sense. Both sorts of time-periods matter. We should be looking both at time periods when irrational exuberance is killing nus all and at times periods in which investors have demonstrated an ability to keep their Get Rich Quick/Buy-and-Hold urges under at least a reasonable amount of control.

I am happy to discuss the entire historical record. That’s why I co-authored (with Wade Pfau) peer-reviewed research doing just that. As you know, that research showed that “Yes, Virginia, Valuation-Informed Indexing works!” (in Wade’s words). I am not willing to select relatively short time-periods in the historical record and pretend that I believe that they tell us something important in isolation. Times in which Get Rich Quick/Buy-and-Hold “strategies” become insanely popular are inevitably followed by time-periods of great human suffering and economic destruction. To look at the Get Rich Quick/Buy-and-Hold years in isolation without giving consideration to the pain they bring on for the entire nation would be irresponsible and misleading and dangerous and foolhardy.

A drunk driver can obtain good results for a limited amount of time. To look only at what happens in the time before he crashes gives a biased view of the merits of drunk driving. To get the full picture, you need to be willing to look also at the death and heartache his dangerous driving practices inevitably bring on. So it is with Buy-and-Hold/Get Rich Quick. Get Rich Quick/Buy-and-Hold can APPEAR to give good results for a limited amount of time. But viewed from a long-term perspective, those appearance are an illusion. You need to be willing to look at the entire picture to develop an informed understanding of the realities. That’s what Wade and I did in our research, which you Goons very, very, very much did not want people to see or talk about.

Rob

“That’s the Question on the Table — Should investors Take the CAPE Value Into Consideration or Not? If You Ignore the CAPE Value and Just Stick With the Same Stock Allocation at All Times, You Are a Buy-and-Holder. If You Take the CAPE Value Into Consideration, You Are a Valuation-Informed Indexer.”

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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:

“Valuation-Informed Indexing is a long-term strategy. “

Which is why I asked “What <b>long term</b> real return are they offering at the minute?”

If I am making a decision as to what my asset allocation should be today I am going to compare the long term returns being offered at current prices by stocks, bonds and cash.

The CAPE value that applies for stocks at the moment affects that determination. That’s the question on the table — Should investors take the CAPE value into consideration or not? If you ignore the CAPE value and just stick with the same stock allocation at all times, you are a Buy-and-Holder. If you take the CAPE value into consideration, you are a Valuation-Informed Indexer.

If the CAPE value is high, that makes stocks less appealing because high CAPE values translate into low long-term returns, It also makes cash-like asset classes more appealing because high CAPE values increase the probabilities of a price crash for stocks. Cash-like asset classes offer an amazing value proposition when stock prices crash because they protect one’s portfolio from suffering big losses at such times and permit one to invest more heavily in stocks when stock prices are highly appealing than one could if one were following a pure Get Rich Quick/Buy-and-Hold strategy. Following research-based strategies is a win/win/win/win.

Do you see?

Rob

“Buy-and-Hold/Get Rich Quick Is What Sells. It’s a Fantastic Marketing Gimmick to Persuade People That Irrational Exuberance Gains Are Real and Lasting.”

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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:

“TIPS, IBonds and Certificates of Deposit are all good choices. “

What long term real return are they offering at the minute?

A Valuation-Informed Indexer would not be buying them for the purpose of obtaining the return that they offer “at the minute.”Valuation-Informed Indexing is a long-term strategy. The Valuation-Informed Indexer would invest in those asset classes because it would permit him to buy more stocks when stocks are available at good prices. The peer-reviewed research that I co-authored with Wade Pfau shows that Valuation-Informed Indexing has performed far better than Buy-and-Hold for the entire history of the stock market.

It is impossible for the rational mind to imagine a circumstance in which exercising price discipline (by engaging in market timing!) could be a bad thing and the entire history of the stock market confirms this common-sense understanding of how things work. Buy-and-Hold/Get Rich Quick is what sells. It’s a fantastic marketing gimmick to persuade people that irrational exuberance gains are real and lasting.

Valuation-Informed Indexing is what works. It is the first true research-based strategy. It is Buy-and-Hold corrected for what we have learned from the last 41 years of peer-reviewed research in this field. Those 41 years of peer-reviewed research are the most important 41 years of peer-reviewed research in the history of investment analysis.

My best wishes to you.

Rob

“I Am a Buy-and-Holder in Every Respect But One. I Incorporate Into the Buy-and-Hold Strategy Shiller’s Nobel-Prize-Winning Finding That Valuations Affect Long-Term Returns.”

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

Rob

What exactly is your investing strategy? Are you sitting on cash waiting for the next price crash? In TIPs?

Given your concern about valuations, what do you think in a reasonable way to invest now?

I am a Buy-and-Holder in every respect but one. I incorporate into the Buy-and-Hold strategy Shiller’s Nobel-prize-winning finding that valuations affect long-term returns.

I believe strongly that investors should Stay the Course. But in a meaningful way, not in a pointless, self-destructive way. In the days when Buy-and-Hold was being developed, there was a belief among academics that the market was efficient (that is, rational). If that were so, market timing would not be required. Shiller showed the it is investor emotion that is really the driving force behind stock price changes and that the only way to keep irrational exuberance from getting out of control is to always keep investors informed of how high prices diminish the long-term value proposition of stocks and that the only way for an investor to keep his risk profile stable when prices rise is to lower his stock allocation.

Each investor’s life goals and risk tolerance are different. So there is no one answer to your question. But I believe that it makes sense to take the conventional Buy-and-Hold stock allocation recommendation and adjust it 30 percentage points down at times of insanely high stock prices and 30 percentage points up at times of insanely low stock prices. That would put the typical investor at 30 percent stocks today. I would put the remainder in something fluid because you want to be able to move it into stocks if prices drop to insanely low levels, as they have in previous Buy-and-Hold crises. If the CAPE drops to 8, the most likely 10-year annualized return rises to 15 percent real.

TIPS, IBonds and Certificates of Deposit are all good choices. Cash is not just a holding place. It is an asset choice of great strategic value in a world in which the Buy-and-Hold “strategy” is being pushed relentlessly and causing an insanely dangerous bull market.

Rob

“If Irrational Exuberance Is a Thing, It Is Obviously a Bad Thing. So We All Should Be Doing All That We Can to Combat It. The Only Way to Combat It Is With Market Timing (Lowering One’s Stock Allocation When Prices Rise to Insane Levels to Pull Them Back Down to Reasonable Levels).”

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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 can clear things up.  Just post links of the actual death threats, job threats or other criminal acts.  While you are at it, point out where Shiller said he agreed with your VII timing scheme.  Point out where any expert has said Greaney’s work was in error.

I’ve posted links to the death threats. You Goons just say that they were discussions of gun safety. If Buy-and-Hold were a real thing, no advocate of the strategy would engage in discussions of gun safety at a retirement planning board. The purpose of the death threats was to intimidate people who wanted to hear honest discussions of the peer-reviewed research into silence.

The title of Shiller’s book is “Irrational Exuberance.” If irrational exuberance is a thing, it is obviously a bad thing. So we all should be doing all that we can to combat it. The only way to combat it is with market timing (lowering one’s stock allocation when prices rise to insane levels to pull them back down to reasonable levels). Shiller has on several occasions publicly recommended market timing. So he obviously believes in it. He once had a throwaway comment in an interview in which he suggested that his confidence in market timing is not today as strong as it once was. I have said that we should all want to know precisely what he meant by that comment and that the Buy-and-Holders should agree to rein in the criminal stuff long enough for Shiller to appear at the Bogleheads Forum and respond to questions re his views on safe withdrawal rates and on market timing. You Goons have not followed up on that suggestion.

Numerous experts have said that the 4 percent rule used in the Greaney study was in error. Wade Pfau, who was my co-author on peer-reviewed research showing that “Yes, Virginia, Valuation-Informed Indexing works!”, said that the Greaney study is “dangerous.” That’s a pretty darn clear assessment. I say that the dangerous study should be corrected and that Greaney should make moves to compensate the people who have been hurt by it or who are likely to be hurt by it in future days for the losses they have suffered or will suffer.

My best wishes.

Rob

“It’s Not Really Greaney That Is the Problem. The Problem Is That Many Normals TOLERATE Greaney’s Behavior. So Behavior Norms That Apply in Every Other Field of Life Endeavor Do Not Apply in the Investment Advice Realm.”

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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:

“When he saw the article in the Wall Street Journal saying that I had been right all along, he gave me a call. I told him about the bans. He was shocked. He said that he was going to put up a post at the Bogleheads Forum telling the story. I told him that he would be banned if he did. He made a bet with me that he would not be banned. Of course he was banned within 30 seconds of advancing the post.”

First of all, I have no doubt that everything in that paragraph is a lie. Which of course is nothing new.

Will you ever get past your Greaney obsession? It’s been 20 years and you’re just as pissed as on day one. Constantly ripping on him only reflects on you. Your current real-life isolation and squalor should have clued you into that by now. Greaney is nobody, except presumably to Mrs. Greaney. Comparing Bengen to Greaney is like comparing Elvis to the third backup Elvis impersonator in Pig’s Knuckle, Arkansas. Yet you just can’t help yourself.

It’s not really Greaney that is the problem. The problem is that many Normals TOLERATE Greaney’s behavior. So behavior norms that apply in every other field of life endeavor do not apply in the investment advice realm. Hence that CAPE value of 35 that applies today. I can handle Greaney so long as everyone around me enforces the same laws in the investing advice field that they enforce in every other field of human endeavor.

Rob

“It’s Not Hard to Calculate These Numbers Accurately. If This Were Any Other Field of Human Endeavor, We Could Get All the Errors Corrected in 15 Minutes. The Problem Is That in the Field of Stock Investing People WANT To Be Told Lies. If the Experts Report the Numbers Honestly and Accurately, They Lose Their Jobs. I Have Been Doing This Too Long to Believe That One Article Is Going to Change the World. If It Was That Easy, Bernstein’s Book Would Have Changed the World Back in May 2002.”

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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:

  1. “There’s no news in knowing that 4 percent is not always safe.”

    When the creator of the 4% rule says 4% is no longer safe, in the friggin Wall Street Journal, it’s huge news. Many times more people saw that article than Bernstein’s obscure twenty year old book. Thousands of times more people than saw Greaney’s study. Millions of times more than remember Greaney’s study (pretty much only you and Greaney.)

    But to you, it’s all meh. Funny how you always have an excuse for taking no action yourself. You accept no personal responsibility for anything or anyone. It’s always “we have to…” meaning other people. When are you, Rob Bennett, going to do something more than make a note for yet another unseen ValueWalk repetition?

    The Wall Street Journal had an article saying that the 4 percent rule is in error many years ago. I had a friend (Brian) at my last corporate job and we had discussed safe withdrawal rates when we worked there together. This was before I ever posted to Motley Fool. He was a Buy-and-Holder. He told me in a friendly way that I was nuts.

    When he saw the article in the Wall Street Journal saying that I had been right all along, he gave me a call. I told him about the bans. He was shocked. He said that he was going to put up a post at the Bogleheads Forum telling the story. I told him that he would be banned if he did. He made a bet with me that he would not be banned. Of course he was banned within 30 seconds of advancing the post.

    It’s not hard to calculate these numbers accurately, Miasma. If this were any other field of human endeavor, we could get all the errors corrected in 15 minutes. The problem is that in the field of stock investing people WANT to be told lies. If the experts report the numbers honestly and accurately, they lose their jobs. So they feel a lot of pressure to either pretend that they believe in the Buy-and-Hold stuff or to actually force themselves to believe it.

    Will it change in the days following the next price crash? That’s the question.

    Do you want to take a bet on whether Greaney corrects his study as a result of this latest Wall Street Journal article? I know which side of that bet I want to be on.

    I’m happy that Bengen is telling at least some of the truth re this matter. But it is going to take more than one somewhat accurate article to get that CAPE value down to a reasonable level. People believe things that they hear over and over again. And the steady drumbeat of the Buy-and-Holders is not going to be drowned out by a single somewhat accurate article in the Wall Street Journal. If we opened every site to honest posting, we would see real change. One article will be ignored by all the people making money pushing the Buy-and-Hold garbage.

    I am happy to see anything honest appear. But I have been doing this too long to believe that one article is going to change the world. If it was that easy, Bernstein’s book would have changed the world back in May 2002.