A Rich Life

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

Rob Bennett’s Responses to Academic Researcher Wade Pfau: #5 — “It’s So Implausible”

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I have two reactions to this observation.

One, there is a sense in which I agree. I said in one of my e-mails to Wade that my 10-year experience of trying to bring an end to the Campaign of Terror against our board and blog communities while developing the Valuation-Informed Indexing concept has seemed more amazing to me than the moon landing. Yes, the words we have seen appear before us when we have turned on our computers have been implausible. Yes, the words we have seen appear before us when we have turned on our computers have been strange and unsettling at times.

There’s another way to look at it, however.

The Wright Brothers once entertained an idea that man could fly. That was an implausible vision too. But we are all a lot better off as a result of the Wright Brothers’ unwillingness to give up on the vision because it was widely viewed as implausible.

The idea that the earth is round was once viewed as implausible.

The idea that the earth revolves around the sun rather than it being the other way around was once viewed as implausible.

The idea that rock and roll would turn out to anything more than a fad was once viewed as implausible. The company that had the rights to release the Beatles’ first three singles in the United States didn’t do so. Why bother? Four moptops couldn’t produce music that would last. What an implausible notion!

The greatest advances in human history begin as implausible ideas. The idea that Yale Economics Professor Robert Shiller’s finding that valuations affect long-term returns will stand up to scrutiny is today an implausible idea to Buy-and-Holders.  I believe that in days to come it will be the Valuation-Informed Indexing Model that will be the dominant model and that it is the idea that there is no need for investors to change their stock allocations in response to big price swings that will be recognized as implausible.

Valuation-Informed Indexing is a huge change from Buy-and-Hold. The change is so dramatic that it shocks people. The idea that we all really can obtain far higher returns while taking on greatly reduced risk really does strike many good and smart people as implausible on first impression. So I think it might be helpful for me to go through the history of how the good and smart people who came up with the Buy-and-Hold Model made the mistake that caused today’s economic crisis and that transformed an investing strategy that was intended to be the first research-based strategy into the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.

The story has ten chapters.

The first chapter, the first thing you need to understand to make sense of why all the academic research supports Valuation-Informed Indexing while most of the experts in this field continue to maintain that Buy-and-Hold must work, that it just must, is that today’s understanding of how stock investing works is primitive.

We didn’t begin studying how stock investing works as an academic discipline until the 1960s. I doubt that there is one academic discipline in which the good and smart people who performed the research got everything right starting on the first day and never once had to acknowledge a mistake in order to free themselves to get back on the right track and move forward again. People mess up. People make mistakes. That’s the way it is. We should stop thinking that the study of stock investing is going to go down as the first exception to the rule.

We are in the process of learning how to crawl. We need to stop talking as if we know it all. We need to chill. We need to take humility pills. We need to make more of an effort to tone down the dogmatism, listen to the other guy to the best of our ability and try to learn.

They didn’t know it all in the 1960s and early 1970s, when they developed Buy-and-Hold. They were taking guesses as to how stock investing might work. They got lucky with a few guesses and hit it on the head. They got unlucky on one big guess and caused an economic crisis some 40 years later. Oopsi! It happens. The Big Shots in this field need to take their Big Egos out for a walk and come to accept that they are humans too. They are capable of goofing up and that’s what they did. It would be no biggie if it weren’t for the 10-year cover-up.

Chapter Two of the story of how we got to the implausible place where we are today is that indexing didn’t exist at the time Buy-and-Hold was being developed.

Buy-and-Hold was developed in the late 1960s and early 1970s. John Bogle launched the Vanguard Group in 1976.

Valuation-Informed Indexing is a practical impossibility in the absence of index funds. We know today that Valuation-Informed Indexing always beats Buy-and-Hold by a very large margin in the long run. But there was zero chance that the people who developed the Buy-and-Hold Model were going to discover that given that the investing vehicle that makes this wonderful advance possible did not even exist at the time. Oh, those horrible Buy-and-Hold creators! Why didn’t they get into their time machine, travel to 1976, and come back and tell the researchers of that day about the wonders of Valuation-Informed Indexing? Bad Buy-and-Hold creators! Bad, bad, bad!

The people who developed Buy-and-Hold didn’t know what they were doing (because knowledge in this field is primitive) and didn’t have available to them the investment vehicle needed to make effective long-term stock investing possible. We’ve already explained why they messed up! But let’s go on. What’s Chapter Three?

Chapter Three is that they got excited about a very powerful insight that they were capable of discovering despite all the limitations that held them back. The Buy-and-Holders discovered that short-term timing never works. That’s only the second most important discovery in the history of investing analysis. Can we begin to develop some understanding of why they made that finding the core principle of the model they were creating? Short-term timing really doesn’t work. The only mistake they made was in improperly writing up the finding that “short-term timing doesn’t work,” which is what the research really showed, as “timing doesn’t work,” something very, very different. They didn’t know it was different because long-term timing wasn’t possible at the time because long-term timing only works with index funds and index funds were not then available. That’s the mistake. That’s what all the noise is about.

Okay then. They made this terrible mistake, which can only be seen as terrible today, 40 years later, because it was a practical impossibility to get it all correct at that time in any event. What comes next?

What comes next is Chapter Four. Chapter Four is Shiller’s research showing that valuations affect long-term returns. Published in 1981. Not available to people creating the Buy-and-Hold Model in the late 1960s and early 1970s. Are you beginning to get the picture?

Chapter Five is the revolutionary nature of  Shiller’s work. In an ideal world, Shiller would have published his research in 1981 and all the Buy-and-Holders would have smacked their foreheads with their palms and declared “Oh, now I get it! Short-term timing never works, but long-term timing ALWAYS works and is in fact required for investors who seek to have any realistic chance of long-term success. Buy-and-Hold isn’t the answer! Buy-and-Hold is a Get Rich Quick scheme. Buy-and-Hold undermines price discipline, rendering the market dysfunctional. So THAT”S why each of the four times in U.S. history when Buy-and-Hold strategies became popular we saw the portfolios of all those who followed the strategy wiped out and an economic crisis to boot! What a mistake we almost made! It’s not Buy-and-Hold we want to spend hundreds of millions of marketing dollars promoting, it’s Valuation-Informed Indexing! It’s lucky for us that that Shiller fellow is so on the ball.”

That’s the way it would have worked in an ideal world. We don’t live in an ideal world. In the world we live in, people fall in love with their theories and become reluctant to abandon them when new research comes in the door. That’s doubly the case when the new research doesn’t say that the original idea is a wee bit off but wildly off. People become defensive. People fall prey to cognitive dissonance. People tune out discussions of the new research People dig in their heels.

You have interacted with the humans from time to time. Surely you have seen this on display by the portion of the population that is not comprised of investing experts. Well, in Chapter Five of our story we learn that the same defense mechanisms that are available to all the humans who do not go to Investing School apply to those who go to Investing School as well.

In Chapter Six, we experience the biggest bull market in U.S. history. Guess what effect that has on the people who developed Buy-and-Hold and then told people they had found the answer to our investing woes?

They call John Bogle “Saint Jack.” That should give you an idea. People feel in love with Buy-and-Hold during the bull. It’s not that it outperformed Valuation-Informed Indexing. It didn’t, except from 1996 through 1999 (and Buy-and-Hold is now down for the entire time-period from 1982 through today). Valuation-Informed Indexing did not exist. So there was no reason for anyone to make comparisons. What people knew is that Buy-and-Hold worked just great. Those people who developed the Buy-and-Hold Model were geniuses! No mistake-makers in that group!

And so we turn to Chapter Seven. Shiller appears at a hearing of the Federal Reserve and reports that Buy-and-Hold is in the process of causing an economic crisis the likes of which we have never yet seen in the United States. This Buy-and-Hold idea that there is no need for investors to lower their stock allocations when prices rise to insanely dangerous levels isn’t working out so hot.

How many of the humans wanted to hear it? I did! I did! Greenspan, not so much. Bogle, not so much. Millions of middle-class investors who saw the nominal values of their retirement portfolios soar during the 1980s and 1990s, not so much.

So the mistake remained unfixed. So the mistake grew ever larger.

In Chapter Eight, Old Farmer Hocus enters the picture. I put a post to a Motley Fool discussion board noting humbly that, if this Shiller fellow knows what he is talking about, those crazy safe withdrawal rate studies are going to cause millions of failed retirements in days to come. The safe withdrawal rate isn’t 4 percent, as thousands of financial planners have been telling aspiring retirees every chance they get. It’s 1.6 percent! For a retiree with a $1 million portfolio, that’s the difference between taking out $40,000 every year to cover living expenses and taking out $16,000 each year to cover living expenses. A wee calculation error! We now get to see in dollars-and-cents terms what it means to look at research showing that short-term timing never works and mangle the message in millions of marketing brochures into “timing isn’t necessary” or even “timing doesn’t work.”

Chapter Nine is when our good friends in The Stock-Selling Industry elect not to fix the mistake but to cover it up, thereby leaving themselves subject to hundreds of billions of dollars in legal liabilities after stocks crash and then crash again (Shiller’s research tells us to expect prices to fall 65 percent from where they stand today). Lots of people ask me why people make such a fuss over correcting the discredited retirement studies. Why not just correct the darn things? That certainly is what they should do. But, if you know anything about the humans, you know that, once they have taken on hundreds of billions in legal liabilities, they become shy about acknowledging mistakes openly and frankly and clearly and cleanly. The studies need to be corrected. But the experts in this field have a very big personal financial incentive to pretend otherwise. It’s a big mess!

And it gets worse as time goes on. It’s one thing to cover up errors in retirement studies for a month. It’s something else to cover them up for a year. It’s really, really something else to cover them up for five years! It’s really, really, really, really something else to cover them up for ten years! Oh, my!

Chapter Ten is Wade’s chapter. He came into our story seeing that the 140 years of historical data really did say everything I have been telling people it says for ten years now. He’s a smart guy and a fine researcher. Why not write some studies up telling the people how retirement planning and stock investing really work? What harm could come of it?

The Buy-and-Hold Goons and their friends in the industry know what harm can come of it. That Wade Pfau fellow can ditch the Nobel-prize-worthy research anytime he pleases. And, if he knows what is good for his career in this field, he will please very soon.

Is the story plausible or is the story implausible?

My take is that the the one-line summary of the story — Internet Goons Threaten Academic Researcher Who Publishes Research That Could Lead to Hundreds of Billions of Dollars in Legal Liabilities for InvestoWorld Big Shots — is implausible as all get-out.

None of the ten chapters taken by itself is all that hard to swallow, however.

Our society is in a big mess. Fix the mistakes and we are on the road to the biggest surge in economic growth we have ever seen. Fail to fix the mistakes and we are on the path to the Second Great Depression.

Fix the mistakes! Fix the mistakes!

But Wade tried. And he couldn’t take the abuse that was dished out to him.

Does any other bright boy or girl want to step up to the plate? Do we have any long-ball hitters sitting on the bench today?

Rob Bennett to Academic Researcher Wade Pfau: “I Am a Bit Disappointed With the Defensive Tone. I Am Extremely Uncomfortable With the Idea That No Shift At All Is Required. I View That Take As a Dangerously Irresponsible One. I Hear a Certain Amount of Apologizing for Bringing the Subject Up in Your Paper.”

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Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on December 10, 2011. I sent a follow-up e-mail the same day.

Wade:

The valuations paper is certainly a step forward. So little work has been done in this area that each new study helps people become more comfortable with the idea of considering valuations.

I was a bit disappointed with the defensive tone. There is no question but that the conventional view is that there is no need to justify Buy-and-Hold strategies, that there is some sort of magic to accepting the idea of making no allocation shifts as a reasonable default. I have never heard anyone justify this position. So I don’t buy it. My view is that an investor must make a choice as to his allocation and that staying at the same allocation at all times is just another choice (one that I personally find intellectually indefensible). I don’t have dogmatic views as to how much of an allocation shift is appropriate in different circumstances. But I am extremely uncomfortable with the idea that no shift at all is required; I view that take as a dangerously irresponsible one. I hear a certain amount of apologizing for bringing the subject up in your paper. Perhaps that is politically smart. But I worry that it allows the dominant “Buy-and-Hold is fine” view to remain dominant
a bit longer.

According to my calculator, the SWR varies from 2 percent to 9 percent. Who are we helping if we suggest that it is acceptable to say that it is always 4 percent? (I understand that you are not saying that directly but I feel that it is an implication that follows from any suggestion that Buy-and-Hold is a reasonable strategy). I don’t object to people defending Buy-and-Hold on grounds that the market really is efficient. That follows intellectually. But I believe that we need to get about the business of settling the question of whether the market is efficient or not and from that point forward accept that research that fails to adjust for the effect of valuations is analytically invalid and must be corrected. It’s too dangerous to leave the question open indefinitely.
If we don’t even know whether valuations have an effect or not, we really are at so primitive a stage of understanding that I question whether we should be calling the analyses we perform “research.” To leave so basic a question unresolved is cowardly, in my assessment (I don’t mean to aim that word at you in particular but at all who work in this field, including journalists as well as researchers).

All that said, there’s a place in the world for a multitude of viewpoints and a multitude of approaches, It could be that your approach will prove to be more influential than mine. Perhaps my experiences have biased me. So I certainly wish you the best of luck with it and i hope the paper generates more discussions coming at the question from a variety of perspectives.

Rob

Rob Bennett to Academic Researcher Wade Pfau: “The Red Line Follows Pretty Much the Same Path as the Blue, But With Lower Tops and Higher Bottoms. That’s the Truer Picture Since the Blue Line in Time Always ‘Catches Up’ to the Red Line.”

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Yesterday’s blog entry reported on an e-mail sent to me by Academic Researcher Wade Pfau on December 3, 2011. I responded the same day I said: “That sounds super.”

My next e-mail from Wade arrived the following day. Wade reported that his article on Valuation-Informed Indexing had officially been accepted at Applied Financial Economics and would be appearing in print within 18 months. I responded the next morning, offering Wade my congratulations.

I next heard from Wade on December 10, 2011. He reported that: ” I ended up writing a new paper on valuations after all.”  He attached a copy to the e-mail and  said that he would provide a link in a few days and that he had submitted the paper to the Journal of Financial Planning.

He also said: ” I just made a blog post about something you suggested to me months ago.  It also came up independently as well at a seminar I gave at Texas Tech University in October. Any thoughts about the result?

http://wpfau.blogspot.com/2011/12/valuations-adjusted-wealth.html

 

Wealth Accumulation Graphic

 

Wade:

I looked first at the blog post. I will comment on the paper later.

I am very interested in the concept you are exploring. I don’t entirely understand what you did. So anything I say must be viewed as being the product of an exceedingly tentative observation.

My impression is that the red line really is a good bit more stable than the blue line. It is not flat. But it is a good bit flatTER.

From 1900 through 1970, the red line follows pretty much the same path as the blue, but with lower tops and higher bottoms. It could be argued that that’s the truer picture since the blue line in time always “catches up” to the red line. If you were using the red line to inform your decisions as to how much wealth you possess, you would be using a better guide because you would avoid temporarily extreme assessments in both directions. That’s a good thing, no?

There’s a big drop in 1970 that makes the red line seem not at all flat for a time. However, in comparison to the blue line, it is flat even then. The drop for the blue line is even steeper. This was the stagflation of the 1970s, which was caused by the bull market of the 1960s. What is happening in a bull market is that we are borrowing money from future investors. What is happening in a bear market is that we are paying back the debt we incurred. I (tentatively) think you could say that
the bull/bear cycle causes real economic damage. So there was more wealth accumulation in the 1960s than there was in the 1970s. But the market numbers exaggerated this reality. The red line shows a drop in wealth accumulation but a less dramatic and more realistic picture than the blue line.

Assuming that the blue line is going to come down and touch the red line (and probably then drop well below it) in coming days, the red line will again prove to be more flat in the post-1990 period.

There’s a very important policy prescription that follows from this (presuming that I am on the right track re what I am seeing). When the blue line next drops below the red line, consumers/investors are going to become convinced that they have far less in the way of wealth than they really do possess (according to the more accurate red line). This is going to cause a greater contraction of consumer spending, which in turn is going to cause a worsening of the economic crisis. If consumers/investors were  made aware that it is the red line that matters for the long run, they would find the blue line numbers less frightening and would be less inclined to reduce their spending even more. That is, persuading millions of middle-class investors that the red line is the accurate wealth assessment line would constitute an EFFECTIVE spending stimulus, something we may very much need in days ahead as the blue line continues to work its way downward.

Please note that the blue line ended up a good bit lower than the red line at the end of the last bull/bear cycle (1982), as it did in 1920 and 1950 (my rough approximations of the ends of the two earlier cycles). If this pattern repeats, we are going to see a blue line (what people believe is their wealth) a good bit below today’s red line. That is going to frighten lots of people.

The question is — Which is the real number? Will people’s fears be genuine or inappropriate? My contention is that the fears will be exaggerated and that the last thing we should be doing in an economic crisis is reporting numbers that cause
people’s fears to be heightened beyond what is justified by the bad-enough realities (the red line).

My overall sense is that bull markets move wealth from one time-period to another. They increase wealth in a current time-period by borrowing from the future. But the net effect is not a neutral one. The shocks delivered to the economy by this
artificial shifting of wealth destroys wealth (because of the inefficiencies connected with having tens of thousands of businesses fail and millions of unemployed workers). So we are all poorer as a result of bull markets. The red line gives investors a better sense of where they stand than does the blue line. If we persuaded investors to pay more attention to the red line, we would diminish the economic shock delivered by the bull market and thereby limit the diminishment of wealth suffered because of it.

I would love to hear about any feedback on the chart provided by others.

Rob

Balance Junkie Column #3 — Liberals Came Closer Than Conservatives With Their Explanation of the Economic Crisis

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I’ve posted the third entry to my monthly column at the Balance Junkie site. It’s called Liberals Came Closer Than Conservatives With Their Explanation of the Economic Crisis.

Juicy Excerpt: The comedian John Stewart had a funny line re this aspect of the story. There was a debate in the early days that executives of firms in the financial sector should be denied bonuses because they would be out of work but for the bailouts they received from the U.S. taxpayers. One executive complained that, without bonuses, “we won’t be able to hold onto out best people!” Stewart observed (I’m paraphrasing) that: “You don’t seem to get it. That’s just the problem. You don’t have any best people! That’s why we’re in this mess!”

That hits close to the truth but not precisely in the way that Stewart meant the words. It’s true that Wall Street doesn’t have any “best people” today. It has plenty of smart and hardworking people, however. The problem is that smart, hardworking people learn what is in the textbooks very, very well, and we happen to be living in a time when most of what is written in the financial textbooks is outdated gibberish (Modern Portfolio Theory was discredited years ago but is still used in the analysis of financial transactions because there are so many powerful people who have made careers promoting it and who don’t want to acknowledge having made such fundamental and widely destructive mistakes).

ITNR #96 — Why Wall Street Doesn’t Want You to Know the Truth About Stock Investing: Part Two

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I’ve posted Entry #96 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Why Wall Street Doesn’t Want You to Know the Truth About Stock Investing: Part Two.

Juicy Excerpt: The financial press is toothless. Politicians who mess up get grilled. But reporters in the investing field are intimidated by the quasi-scientific claims made by Buy-and-Holders. It’s a special few who are able to work up the courage to ask hard questions of a John Bogle or a Warren Buffett or a Robert Shiller.

ITNR #95 — Why Wall Street Doesn’t Want You to Know the Truth About Stock Investing: Part One

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I’ve posted Entry #95 to my weekly Investing: The New Rules at the Death by 1,000 Papercuts site. It’s called Why Wall Street Doesn’t Want You to Know the Truth About Stock Investing: Part One.

Juicy Excerpt: The case for Valuation-Informed Indexing is strong. But the case is not yet rock-solid. For the case to become rock-solid, we would first need to see a national debate in which all of our fundamental beliefs about how stock investing works were put into question. The Buy-and-Holders have been successful in stopping the debate from moving forward by creating a Social Taboo against even suggesting that such a thing is needed. The result is that they remain able to make the argument that the case for Valuation-Informed Indexing is not as strong as advocates of the new model would like it to become.

ITNR #94 — The Fed Laughed, and the Rest of Us Are Still Laughing Today

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I’ve posted Entry #94 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called The Fed Laughed, and the Rest of Us Are Still Laughing Today.

Juicy Excerpt: Full truth be told, we’re still laughing today. We use the word “economic crisis” all the time. But we don’t back up our use of the word with the actions that would naturally follow if we believed that the word “crisis” truly applies to the state of our economy today.

“This Is Why We Have Reporters in This Crazy Mixed-Up World of Ours. Others Do Other Things. Reporters Do This.

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Set forth below are the texts of four comments that I recently put to the Goon Central board (the fourth is a brief addendum):

I’m going to write an article that will detail all the people who have been intimidated by the Sewer Rats into saying something other than the full truth. The article will collect them all in one place for the benefit of the political bloggers who need to be writing about this. I will tell the Wade story and the Larry Swedroe story and the J.D. Roth story and the Bogle story and the ES story and the Bill Sholar story and the story of the fellow who owns IndexUniverse.com (I don’t recall his name at the moment) and the Bill Bernsteinzzz story and the story of the site administrator at Motley Fool and so on.

I think a lot of people like to tell themselves that these are isolated incidents. People don’t like to think that humans can sink this low. By seeing all of this material collected at one place, with links provided, I think we stand a better chance of getting this written up in big-name publications as a political story rather than a financial story. There are lots of liberal publications that have taken the line that Wall Street caused the economic crisis. This shows that they were pretty close to being right all along (closer than the conservatives who claimed that the problem was a few programs that helped low-income people obtain mortgages).

My experience is that, if you are doing the right thing and you just keep trying new things, sooner or later you will hit gold. I think that’s what we will see in this case.

I certainly acknowledge that I never thought it would take this long. So it has been proven that just because I say it doesn’t mean it is going to happen.

And the hand of kindness will of course always remain extended. No time limit whatsoever re that one.

Rob

detail exactly how you think that people like Professor Pfau have purposefully mislead people and the actual damage it causes.  

I’ll tell both sides, GW.

Wade took on responsibilities when he became a professor. One of those responsibilities is to say what he truly believes, not to permit himself to be intimidated by the sorts of individuals who have posted in “defense” of Lindauer and Greaney. So, yes, that story needs to be told.

That is not the entire story by itself, however. Wade is a hero. He has published research that merits a Nobel prize. He has stood up to the L Heads and G Goons on several occasions. He has helped us all find our way out of the economic crisis in very, very important ways.

Wade should not have to put his job at risk by posting honestly on SWRs or any other issue. Nor should John Bogle. Nor should Bill Bengen. Nor should Scott Burnszzz. Nor should Bill Berstein. Not should the owner of IndexUniverse.com. Nor should the site administrator at Motley Fool. Nor should ES. Nor should J.D. Roth. Nor should Mike Piper. Nor should the owner of the Monevator blog. Nor should Bill Shuler. Nor should Brett Arends. Nor should Bill Shultheis. Nor should Michael Kitces. Not should Jacob at My Personal FInance Journey. Nor should Larry Swedroe. Nor should John D. Craig. Not should Microlepsis. Nor should Retired at 40. Nor should BenSolar. Nor should Wanderer. Nor should Rahiv Sethie. Nor should Carl Richards. Nor should Norbert Schenkler. Nor should Mel Lindauer. Nor should Taylor Larimore. Nor should John Greaney. Nor should Rob Bennett. Nor should GW.

You know what?

On the day we open the internet to honestzzz posting, all of these people will go to bed knowing that never again will they have to post dishonestly, either in part or in whole. The long national nightmare will be over. We will have buried the Get RIch Quick aspects of Buy-and-Hold, the smelly garbage that has turned us against each other and brought on the worst economic crisis, in U.S. history, 30 feet in the ground, where it can do no further harm to humans and other living things.

You’ll thank me that night, GW. It may be that you will have incurred millions in legal liabilities. It may be that you will be looking forward to a prison sentence. I still think you will thank me. You will have played a role in bringing about the final death of Get Rich Quick (something that was intended with Buy-and-Hold 1.0 but not achieved until the 2.0 version) and that will make you feel good inside about yourself and the effect on your community around you for the first time in a long time. And we will shake hands. And we will mean it. And we will get on with the rest of our lives.

Count it, my good friend.

It all comes out. It all needs to come out. It is by getting out all the poison that we move to the other side of the Big Black Mountain. And once we get out, we never, ever, ever, ever look back.

Hang in there, good buddy. It’s going to be a wild ride!

Rob

I forgot:  make sure you send the article to the targets, such as Pfau, as well as to people in positions of responsibility over them.  don’t hold back!

I won’t post the article until I am confident I’ve got it right, until I am proud of it. So, sure, my hope is that Wade and all the others will read it.

I’ll send e-mails to those with whom I am in regular contact at the time. That’s obviously not going to be all of them. I certainly won’t be putting anything in the article that I would not say to the face of each person mentioned, however. My hope is that they all will read it. I will encourage all who know about the article to share it with all mentioned and indeed to share it with the entire world. I will respond to any questions directed to me by those mentioned or by any others, including the Sewer Rats. If any of those mentioned or any others write rebuttals, I will be thrilled to post them at my blog.

It’s cover-ups that got us into this mess, GW. It’s not cover-ups that will get us out. We get out by exposing the cover-ups. It’s the cover-ups that cause the pain, not the exposures of the cover-ups. Had there never been a cover-up by Motley Fool of Greaney’s death threats, this would have ended in August 2002 and we would today be living through the greatest period of growth in U.S. history instead of the worst economic crisis in U.S. history.

This is a reporter’s job. This is why I became a reporter. This is why we have reporters in this crazy mixed-up world of ours. Others do other things. Reporters do this.

I cannot contact every person in the entire world to share the article with them all. But I would if I could. I will be putting my name on that article and you won’t see any words in it that I am not proud to put my name to. I think it would be fair to say that you can take that much to the bank.

Please take good care of yourself, GW. Please let love shine in your heart and brighten all your days. That’s my sincere wish for you, my fellow human.

Rob

My fellow crazy human, I should have said.

That would have been even a wee bit more accurate and complete and life-affirming.

Rob

 

 

“The Terms “Buy-and-Hold” and “Get Rich Quick” Are Synonymous. Virtually All of the Risk of Stock Investing Comes from the Human Inclination to Be Drawn to a Buy-and-Hold/Get-Rich Quick Strategy”

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Set forth below is the text of a comment that I recently put to the Goon Central board:

Do these concepts look the same to you, idiot?

Yes, Drip Guy. The terms “Buy-and-Hold” and “Get Rich Quick” are synonymous. Virtually all of the risk of stock investing comes from the human inclination to be drawn to a Buy-and-Hold/Get Rich Quick strategy.

I will make an effort to explain why this is so. If you make an effort to listen, I am confident you will get it. If you permit your rage at discovering that there was a time when you did not know everything there is to know about stocks overcome your reason, you obviously will fail to get it yet one more time. I can put forward the explanation. It is necessary for you to put a tiny bit of effort into this too for the back-and-forth to bear good fruit.

Here is your definition of “Buy-and-Hold:

used to describe the activity of investing in something and then keeping it for a period of time

That’s a good definition.

Now —

What’s wrong with the idea of investing in something and then keeping it for a period of time?

What’s wrong is that this definition says nothing about whether the thing invested in offers a strong long-term value proposition or not!

Warren Buffett holds his investments for a long time. But he sure as shootin’ ain’t no Buy-and-Holder in the way that it is practiced by Lindauer and Greaney and Bogle. Buffett buys things worth buying and holds them. Lindauer and Greaney and Bogle buy stocks when they are garbage and then refuse to consider selling no matter how much holding on to garbage depletes their portfolios.

Huh?

I am not overstating things when I say that stocks were garbage in January 2000, Drip Guy.

The most likely annualized long-term return was a negative 1 percent real. TIPS were at the time offering a positive 4 percent real. That’s a return differential of 5 percentage points per year. For 10 years running. That adds up to a total loss of 50 percent of the initial portfolio size.

You are telling me that this is an acceptable investment strategy? If you truly believe that, you are insane.

This is suicide investing.

There are ten different aspects of the Buy-and-Hold package that are pure gold. As you know, I praise these aspects of the Buy-and-Hold package to the sky all the time.

But the Get RIch Quick aspect is so devastatingly bad that it overpowers all that could be good about Buy-and-Hold.

There is not one person on Planet Earth who benefits from the continuance of this 10-year-long cover-up, Drip Guy. Certainly not any Buy-and-Holders.

The Buy-and-Holders should be dancing in the streets today. They are the ones who came up with the idea of rooting one’s strategies in the academic research. The research has now taught us how to reduce the risk of stock investing by 80 percent while delivering long-term returns far higher than most people ever thought possible. We should today be in the Golden Age of Stock Investing and celebrating the Buy-and-Holders for being the ones to have brought it to us.

Where are we instead? We are living through the worst economic crisis in U.S. history, one caused by Wall Street’s relentless promotion of an investing strategy that was originally intended to be research-backed but which became the opposite of that when research was published showing that the Buy-and-Holders got one thing horribly, horribly wrong and the Buy-and-Holders reacted not by fixing the mistake but by adopting a policy of engaging in defamation and death threats and board bannings and smear campaigns to block any of the millions of middle-class people whose lives are in the process of being ruined by this pure Get Rich Quick garbage from learning what they need to know to salvage what is left of their retirement hopes.

That’s brilliant work, Drip Guy. Congratulations! You’ve turned John Bogle into Bernie Madoff! You’re a true Boglehead through and though!

Heaven help us all.

Rob

Beyond Buy-and-Hold #78 — The Crisis That Doesn’t Really Concern Anyone All That Much

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I’ve posted Entry #78 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called The Crisis That Doesn’t Really Concern Anyone All That Much.

Juicy Excerpt: If you were sick and went to a doctor for help and he gave you a diagnosis that vague, you would demand better. If we were seriously concerned about the crisis, we would demand better of those offering explanations for what happened. We’re not really that worked up about it just yet. Or maybe we don’t want to hear what we suspect they would come up with if we asked them to make a serious effort.