A Rich Life

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

“No Site Owner Should Ever Knowingly Facilitate the Dissemination of Materials Known by Him or Her to be Malicious and Defamatory and Consequences Must be Visited on Those Who Do So If the Internet Is to Become a Safe Place to Transact Business”

by

Ken Evoy, the owner of the SiteSell.com site, put a post to Facebook on August 18 titled Proof That Google Has No True Googlebomb Algorithm. The post describes a defamatory and malicious effort to do harm to the SiteSell business through use of the internet.

I posted a comment supporting Evoy in his efforts and describing the nine-year Campaign of Terror against the Retire Early and Indexing discussion-board communities led by those posting in “defense” of the Old School safe withdrawal rate studies and supported by numerous Buy-and-Holders (there are also numerous Buy-and-Holders who have expressed a desire that honest posting be permitted, to be sure).

Juicy Excerpt: It is the Decency in Communications Act that makes this sort of thing possible. If sites could not permit known cases of defamation, every site could ban this individual and his supporters once they saw him post. But once a site has permitted defamation to continue for months, how does it justify turning on a dime and prohibiting it? We have created a big mess by applying different rules on the internet than have always applied in the non-internet world. No site owner should ever knowingly facilitate the dissemination of materials known by him or her to be malicious and defamatory and consequences must be visited on those who do so if the internet is to become a safe place to transact business.

Evoy responded to my comment by stating: “That is one of the issues that Google hides behind. Our attorney, an intellectual rights attorney, dismantled that in one of our communications with him…. While the content of the review IS defamatory and malicious, it’s not the issue that this post focuses upon, for the reasons you outline.”

I responded by thanking Evoy for his comments and for wishing him well in his efforts to have this obvious injustice addressed by Google.

Associate Professor Wade Pfau Has Contacted Trinity Study Authors re Analytical Errors in Their Safe Withdrawal Rate Study

by

Wafe Pfau, Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan, has sent an e-mail to the authors of the famous (infamous?) Trinity study of safe withdrawal rates for retirees asking the authors whether it was their intent when preparing the study to identify the safe withdrawal rate for retirees. Here are his words:

“Okay, I took care of it. I was a little timid about contacting them, as I was publicly critical of their study in the past. But first I apologized to them for that. Then I explained my concerns about 4% for retirees since the mid-1990s. Valuations was a part of my list. I’ve even invited Prof. Walz to give a seminar at my university, as he is in Hong Kong during the spring term. This matter is settled.”

There’s been a debate raging on the internet re this question for nine years now. The debate is referred to as “The Great Safe Withdrawal Rate Debate.”

Numerous discussion boards and blogs have banned honest posting on the safe withdrawal rate matter after seeing the rage (which has at times evidenced itself in death threats, defamation and long-ongoing internet harassment campaigns) evidenced by those who believe in the Buy-and-Hold investing strategy when accurate reports of the safe withdrawal rate are posted. Buy-and-Holders view accurate reporting of the safe withdrawal rate as a threat to the dominant model for understanding how stock investing works.

The reason why the Old School safe withdrawal rate studies do not include an adjustment for valuations is that they are rooted in a belief in the Efficient Market Theory (developed by University of Chicago Economics Professor Eugene Fama), an academic construct that posits that the community of investors always considers all factors bearing on stock prices when setting stock prices and that overvaluation and undervaluation are thus logical impossibilities. Yale University Economics Professor Robert Shiller discredited the Efficient Market Theory (and the Buy-and-Hold strategy rooted in a belief in its principles) with research done in 1981 (and replicated many times in the three decades since) showing that valuations affect long-term returns. If valuations affect long-term returns, both overvaluation and undervaluation are obviously real phenomena.

Pfau has expressed numerous concerns about the Trinity study but does not share my view that the study needs to be corrected.

My view is that the study needs to be corrected because the safe withdrawal rate is the product of a mathematical calculation and it looks very bad when investors hear two wildly different reports as to the results of that mathematical calculation. Common sense tells us that something fishy is going on when different people make such wildly different claims for the result of the same mathematical calculation.

Thus, the friction generated by this “controversy” (there of course is no genuine controversy over what the numbers say — the historical stock-return data is public information and anyone who has ever gone to the trouble to check the data has found that Shiller is right that valuations affect long-term returns, at least in the 140 years of historical data available to us today) cannot go away without a resolution of the question of whether valuations really do affect long-term returns or not. I think it would be wonderful if as a society we could explore all of the amazing breakthrough insights that follow from Shiller’s research (I write weekly about these insights in my “Valuation-Informed Indexing” column at the www.ValueWalk.com site) and that only becomes possible when we open investing boards and blogs to honest posting on safe withdrawal rates and other critically important investment-related topics.

Pfau’s view is that it is possible that the Trinity authors did not intend to identify the safe withdrawal rate. He points out that the study uses the phrase “sustainable withdrawal rate” rather than “safe withdrawal rate.” I do not see the significance of this point given that the two phrases signify the same thing. A sustainable withdrawal rate is a safe withdrawal rate and a safe withdrawal rate is a sustainable withdrawal rate. I presume that “safe withdrawal rate” became the popular term because it is shorter.

Pfau also notes that the Trinity authors properly identify the withdrawal rate that has always survived historically. The problem with this argument is that the thousands of us who have expressed a desire that honest posting be permitted have been saying since May 2002 that the entire “controversy” could be put to rest in seconds if the Buy-and-Holders would be willing to refer to the number generated by the Trinity study (4 percent) as the Historical Surviving Withdrawal Rate (HSWR) rather than the Safe Withdrawal Rate (SWR). The Buy-and-Holders have been unwilling to consider this idea. If it were to become widely known that the Trinity study and the other Old School SWR studies report the HSWR rather than the SWR, the millions of investors who need to know the SWR to plan their retirements would lose interest in those studies. The SWR has great value as a planning tool. The HSWR does not.

John Greaney, the author of the Old School SWR study that appears at the www.RetireEarlyHomePage.com web site, has started a thread at the Motley Fool Retire Early board (honest posting on the subject of early retirement is no longer permitted at the board) suggesting that Pfau may be denied tenure because he has crossed Greaney by asking the authors of the Trinity study a question about their intent in preparing the study. The intimidation tactic is typical of Greaney’s behavior going back to the morning of May 13, 2002, when I put a post to that same board (at a time when honest posting on early retirement was not only permitted but encouraged) pointing out the analytical errors in the Old School studies.

The encouraging news is that, while in the old days, there would within a few hours have been scores of posts put forward by Buy-and-Holders endorsing Greaney’s intimidation tactics, in this case Greaney’s post has gone unanswered. This is how change happens. There’s a famous post by Ghandi in which he observes something to the effect (I am paraphrasing) that “first they ignore you, then they ridicule you, then they attack you, then they say that everyone knew you were right all along.”

I think it would be fair to say that Pfau’s suggestion that perhaps the Trinity authors had never intended to identify the safe withdrawal rate brings us to the “then they say that everyone knew that you were right all along” stage of this particular “battle.” Let’s all pray that the Trinity authors are able to work up the grace and courage to say something in response that pushes the ball even a little bit farther ahead.

Heaven help us all!

“I Think No One Really Knows the Precise Scope That the Trinity Authors Had in Mind….You Don’t Need to Convince the Trinity Authors to Fix Any Errors”

by

Yesterday’s blog entry set forth the text of a comment I made in a recent discussion about safe withdrawal rates with researcher Wade Pfau (Wade says that he does not believe that the authors of the Trinity study meant to identify the safe withdrawal rate (SWR) in their safe withdrawal rate study and that the thousands of financial planners who for many years now have been saying that they did were mistaken to think that and that it’s just tough cookies for the millions of middle-class people who will likely be suffering failed retirements because of the errors made in the Old School SWR studies but not corrected to this day). Set forth below is the text of Wade’s comment in response to mine:

Rob, DRiP Guy kind of won me over with his discussion of scope vs. error at Bogleheads. Well, I think no one really knows the precise scope that the Trinity authors had in mind when they first formulated their study. But if their scope was only to look at how things worked out in the historical data, then there is no error. I mean, I’ve replicated their study and didn’t find errors in their calculations. So there is no error in that regard.

The error comes if people apply those success rates incorrectly to future retirements. I don’t know how the Trinity authors feel about the points you make regarding valuations. Perhaps they agree with DRiP Guy that valuations do not make an important difference, or at least that they do not provide a clear difference that can be correctly acted upon. But I still think there are other reasons to be worried about 4% (fees, international perspective, …) besides just the valuations issue.

This is where I wish the Trinity authors would be more vocal. But even so, the 4% rule is so ingrained into the national consciousness that even if they said something now it would have very little effect.

The duty is for others to come along and explain why they believe that the Trinity study does not provide the whole story about retirement planning in a forward looking manner.

That’s what you are doing. But in doing that, you don’t need to convince the Trinity authors to fix any errors. Just build on their earlier work. Which you did with your retirement evaluator.

As well, as the discussion at Bogleheads is now heading: the whole SWR debate is built on a rather artificial premise that people use a portfolio of risky assets to finance a clearly defined set of planned expenditures. In real life this isn’t how things work,

ITNR #40 — How to Get Banned at 15 Internet Sites Without Even Trying

by

I’ve posted Entry #40 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called How to Get Banned at 15 Internet Sites Without Even Trying.

Juicy Excerpt: I’ve given thought to writing the good people at the Guinness Book of World Records and requesting a listing: “Most Times Banned from an Internet Discussion Board or Blog Without Ever Once Putting Up an Abusive Post.” No one is ever going to top my “15.” That one is like Joe Dimaggio’s 56-game hitting streak. That one is going to stand the test of time.

It’s not just the number of times that I have been banned that is so remarkable. It’s the manner in which it has been done. I’ve been banned at boards that I founded. More than once. Beat that!

I’ve had site administrators write me apology notes when they banned me. More than once. Beat that!!

I have had people tell me that they keep up with everything I write on investing and find great value in my stuff and then ban me in the same e-mail. More than once. Beat that!

Tom Drake of the Canadian Finance Blog: “Why the Bans?” [But Please See Note at Bottom of Blog Entry]

by

Tom Drake, owner of the Canadian Finance Blog, yesterday put forward the following words in the discussion thread following my Guest Blog Entry titled The Five Big Benefits of Valuation-Informed Indexing:

Hi, thanks for the informed discussion. After reviewing some of this material I feel like I am missing something. The approach seems to jive with all the value based investing learning I have been engaged in; including Ben Graham, Jarislowsky, Kyle, Green, Motley Fool, Josh Peters, Geraldine Weiss, Browne. Sounds like bottom up value investing to me, entry point very important, adjustments to allocations important. So why all the controversy? Why the bans? What am I missing from the strategy?

Thanks

Tom

Set forth below are the words that I posted in response:

That’s a super question, Tom. Thanks for asking it.

Valuation–Informed Indexing is a COMBINATION of the insights of Buffett (Value Investing) with the insights of Fama/Malkiel/Bogle (Buy-and-Hold). I view Value Investing as the best of all investing strategies. I also think that Bogle did something huge in coming up with an approach simple enough to permit the typical middle-class worker (who has little desire to research stocks) to tap into the benefits of stocks. But Buy-and-Hold cannot work long term without a valuation component. The idea here is to make Buy-and-Hold workable in the real world.

In an intellectual sense, there is nothing even the slightest bit controversial here. You are 100 percent right about that. None of the people who insist on bans dispute that valuations affect long-term returns. There is no disagreement as to what the research says.

The controversy is rooted in concerns over the practical implementation of the finding that valuations affect long-term returns. When financial planners use safe withdrawal rate analysis to help people plan their retirements, should they include a valuation adjustment in the analysis? If no adjustment is included, the SWR is always 4 percent. If one is included, the SWR varies from 2 percent at times of high valuations to 9 percent at times of low valuations. For someone with a $1 million portfolio at the time of retirement, that’s the difference between living on $20,000 in every year of the rest of his life or living on $90,000 in every year of the rest of his life.

If valuations really affect long-term returns (there is today a mountain of research showing that they do), the Old School SWR studies have caused millions of middle-class people to plan retirements that are almost certainly going to fail. And the asset allocation advice given in 90 percent of the investment books available today is wildly wrong. And the risk management advice is wrong. And on and on.

To understand what is going on, you need to appreciate the history of how our knowledge of how investing works has developed over time. Research showed in the 1960s that short-term timing never works. This was a huge advance. Unfortunately, most researchers of the time did not see the need to distinguish short-term timing from long -term timing. So the interpretation of the finding that short-term timing does not work was that “timing doesn’t work” (the finding is correct but the interpretation is wildly wrong).

Then Shiller did research showing that long-term timing ALWAYS works and in fact is required for long-term success. This finding is ALSO of huge importance and needs to be integrated into the mix (investors need to be told both to avoid short-term timing and always to be certain to practice long-term timing). But the Buy-and-Hold advocates don’t like even a tiny little bit the idea of acknowledging that they made a mistake.

You are right to note that Buffett (and all Value Investors) were aware of the importance of valuations going back to the first day. Had Fama and the others paid more attention to Buffett, they never would have gotten us into this mess. They didn’t. They created academic models that improperly ignored Buffett’s insights.

Shiller’s research essentially incorporates Buffett’s insights into the academic research. We now have two camps taking the academic research down two opposite paths. The Fama camp lives in the imaginary world where the market is efficient and thus valuations don’t matter. And the Shiller camp lives in the real world where valuations are the most important thing that an investor needs to look to in setting his stock allocation.

Both camps are analyzing the same data and yet coming to wildly different conclusions on every practical investing question. The reason is that they are starting from opposite premises. One camp calculates all its numbers with zero consideration of valuations. The other includes valuations in its analyses and thereby learns that valuations are by far the most important factor bearing on just about every question examined.

There is zero dispute re the facts. But there is a HUGE controversy as to whether the facts as we know them today may be REPORTED on public investing boards and blogs.

Rob

Note: It turns out that it was not Tom Drake who wrote the words that are the focus of this blog entry. It was another community member named “Tom.” Knowing that Tom Drake is the owner of the blog, I jumped to the improper conclusion that it was Tom Drake who wrote the words. I apologize to Tom Drake, to the other Tom and to all community members who have read the blog entry for the confusion I have caused.

Tom Drake told me in his note that he has no objection to being identified as the author of the words put forward by the other Tom. Tom Drake is as confused as the other Tom (and as many others, no doubt) as to why there is a Ban on Honest Posting on the realities of stock investing in effect today at numerous discussion boards and blogs. The reason why I put forward the blog entry when I was under the impression that the words were those of Tom Drake is that it is a significant development that there is now an influential blogger willing to ask questions about the ban. For many years now many personal finance bloggers have kept mum about this.

Given that Tom Drake says he agrees with the author of these words, I have elected to leave the headline of the article as I wrote it while adding this note explaining that he was not in fact that author of them at the time they were put forward in a blog comment (but signed onto them only afterwards).

I look forward to the day when the entire Personal Finance Blogosphere takes a strong stance in opposition to continuation of the Ban on Honest Posting, permitting all of us to direct our full energies to examination of the important substantive issues in question here. It is my sense that we are making slow progress in our journey to that wonderful place where we all deep in our hearts want to be.

“The Scary Thing Is That Rob Is An Optimist”

by

Jennifer at the Live Richly blog offered some fine comments re The Troubles in a recent post of hers titled Will You Retire on Your Stocks?

Juicy Excerpt #1: I started reading some guest posts by Rob Bennett of Passion Saving, and found out that his stance on buying when stocks are cheap and not when they are expensive is a controversial one. To me, this just seems like common sense, but apparently many advocates of buy-and-hold won’t even let Rob give his point of view.

Juicy Excerpt #2: Rob looks at long term averages, and correctly states that your US stock purchases made in 2000 should pay off in the long run – in the year 2030. He asserts that stocks have performed as expected by students of history, but that most investors thought that the market would turn around much faster.

Juicy Excerpt #3: The scary thing is that Rob is an optimist. The whole idea of funding retirement on stocks is a new one. It’s a giant experiment, and the Baby Boomers are the guinea pigs. No generation has ever successfully relied on stocks before, and I don’t think the Boomers will be the first.

“When People Fail to Speak Up About Obvious Evils, Those Evils Retain the Power to Do Harm to People”

by

Recent blog entries have reported on correspondence between a community member named “Larry” and me. Set forth below is the text of an e-mail that I sent to Larry on November 13, 2009.

Larry:

I am grateful that you care and that you are willing to share your sincere thoughts re this with me. That’s obviously a kindness. I of course agree that God placed people like my wife and my brother (and you!) in my life to guide me to good things. I do try to hear what they have to say and to the extent possible I try to acknowledge that it is possible that I am not hearing all that I need to hear. It’s hard for all of us to do that. All that we can do is to try as hard as we can to remain open to other takes.

I entirely agree when you say that I should not try to force my message on anyone. But then I don’t do that! I think people should invest according to their own beliefs. I’ve certainly never said different. The way that it should work is that I should share what I think and others should share what they think and those listening in should decide for themselves. That’s the ordinary operating procedure in all areas other than investing, is it not? I think that’s what would work best in the investing area too.

If you are ever interested in reading background materials re this aspect of things, I provide a number  of articles at the “Banned at Motley Fool!” section of the site. It’s there to help people come to a better understanding. If you or anyone else ever expressed interest in writing something giving a side to the story that I have not put forward, I would be happy to post something like that as an article at that section of the site. My guess is that you are not interested in doing that and that is of course fine. I am just saying that in the event that you or anyone else were interested, I think it would be a good thing. I am not saying that my views on this aspect of things should be the only views heard.

You say that I cannot “control” whether the internet is opened to honest posting on investment topics. I obviously cannot control that by myself. But I control it IN PART. We all do. Each of us through our posting decisions make the internet a little more open to honest posting or a little more closed to it. I want my posts to be posts that encourage more openness. That much I control. I understand that I do not control more than that, but I don’t view doing more than that to be my responsibility.

I am all for having more allies. That is solid, practical, constructive advice. I would like to have thousands of allies. You are of course right that that is a critical piece of business. Tell me where to sign up for more allies!

I don’t understand what you are suggesting when you say that I “focus” on detractors. I don’t feel that I focus on detractors any more than I focus on supporters. I talk and write about both all the time. I don’t IGNORE the detractors, that much would be fair to say. I strongly believe that the detractors and the tactics they have employed to block the supporters from having the discussions they want to have are a big part of the story.

I don’t view this as an intellectual story. Everything I have pointed out has been “known” (in the sense that it has been publicly available information) for 28 years now. I think a big question here is — Why is information that has been publicly available for so long not widely known? It’s because people are afraid to bring it up or to talk about it or to ask questions about it. In my eyes, that’s the entire deal. Once we get over our fear of violating the social taboo that forbids honest discussion of investing, the whole national nightmare comes to an end.

There’s nothing to “understand” here, Larry. It’s all simple common sense. You have to look at how much you are paying for stocks before you buy them. That’s a revelation? I don’t think so. It comes across as a shocking news development only because for so long now we have as a people been unwilling to talk about the common-sense realities. I don’t see how we are going to change things until we change that reality.

Say that you get 100 pension people to agree with you. What are they going to do about it? To do any good, they are going to need to talk about the realities, are they not? If they do that, sooner or later those who believe in Buy-and-Hold are going to find out and become upset. It leads to the same place sooner or later, does it not?

The problem here is not that I say that we should be permitted to talk honestly about investing on the internet. In ordinary circumstances, that one would be considered so obviously true that it would be silly for me to bring it up. The problem here is that investors who believe in Buy-and-Hold become upset when the realities are mentioned.

That’s a real problem. I don’t make light of it. I say that we cannot solve that problem unless we first start TALKING about it. It’s a very real, very serious, very troubling problem. It is the problem that causes all the other problems. We should get it out on the table and discuss it and try to solve it. That’s my belief, in any event.

I DO post where I can and then let it go. What choice do I have in any event? You say “move on to people who will listen.” There are LOTS of people at all the Retire Early and Indexing boards who have expressed a desire to listen (and to share their own thoughts, to be sure). Again, there’s an article at the “Banned at Motley Fool!” section of the site where I quote 101 of them. That’s only a small sample.

There has never been any problem getting people interested in hearing about the ideas. There’s been huge interest since the first day. The problem has always been that the group that doesn’t want people to be able to listen is 50 times more intense than the group that wants to be able to listen. The group that doesn’t want people to be able to listen knows what is at stake if the discussions are permitted. My sense is that the group that wants to be able to listen does not appreciate how big this is.

But there are many, many people on all the boards and blogs who very much want to be able to listen. This has been clear as clear can be going back to the first day. I think that, if you asked “how many support the idea of honest posting?” you would have 80 percent saying “yes.” The trouble has been that most find the abusive posting a huge turn-off.

I think that if we dealt with the abusive posting, all the other problems would just go away. (I certainly do not mean to suggest here that everyone would agree that Valuation-Informed Indexing is the way to go. That’s a very, very different question. I am just saying that most are open to the idea of having both sides state their sincere views so long as abusive posting does not enter the picture.)

Jesus did not hold back from saying what He felt needed to be said out of fear that some would become angry on hearing it, did He? He put forward some Hard Sayings. And He certainly did not limit Himself to speaking only to those who were in 100 percent agreement with him from the start. He spoke to sinners. Well, the Buy-and-Hold Investors are the sinners of InvestoWorld. We need to talk to them. Talking is caring. I view it as the easy way out to say “Oh, well, I will only talk to those who praise me from the first time they hear me.”

I CARE about the sinners, Larry. Because I am a sinner. I believed in Buy-and-Hold Investing once upon a time. I have an inner Goon. I do dumb stuff. I fall for marketing slogans.

And I LEARN from the sinners. All the time. I have learned from talking with Schroeder. And from talking with Drip Guy. And from talking with Norbert Schenkler. These are three of the most abusive Goons in the history of our boards. And I have learned important things from talking things over with them. I need to filter out the hate stuff to be able to make any sense of what they say. But there is sometimes sense buried there that can be found if you look for it.

The Goons do not want to destroy their lives. They do not want to delay their retirements. On some level they do not want to be Goons. They want to be humans. In that sense they are like me. Or like you.

We all have Goonishness within us, Larry. That’s a big part of the story being revealed here. The Sharpe Ratio doesn’t measure the Goonishness in the air at any given point in time. That’s why the Sharpe Ratio causes us to get all the numbers wrong. Goonishness enters the picture once we bring humans into the story and let them be the ones buying the stocks.

Eugene Fama doesn’t feel comfortable talking about human emotions. That’s why he spends so much time walking through blind alleys. The part of investing that has been ignored for years now is the human part. It’s re that part of the story that I have something worthwhile to offer. When you bring humans into the story, you bring Goonishness into the story. That’s just the way it goes. God lets Goonishness continue. It was His call to make this part of the story, not mine (I am just a mild-mannered reporter who writes up what he sees appear before his eyes, nothing more and nothing less).

My view is that these things need to be said. My goal is to have a world where EVERYONE shares his or her honest views. The very fact that that this is today considered by some an impossible dream tells me that there is something very, very wrong with the current set-up. I view honesty as Job #1. Without honesty, I feel that all the words that follow are empty words. Humans can never achieve absolute honesty. But we should TRY. That’s all that I do. I TRY to post honestly.

One thing that I do that is different from some others is that, when I feel inclined to pull back and not post my honest beliefs because of intimidation tactics, I make an effort to work up the courage to post my honest beliefs DESPITE the intimidation. I think that’s the answer. I think that we all need to try to OVERCOME this social taboo that has stopped us from writing and thinking honestly re these questions for many years now. We often learn by saying things out loud.

When we don’t SAY what we believe, it becomes hard to think clearly. I have found over and over again that, when I work up the courage to say something that for a long time I had been afraid to say, it causes me to discover a powerful new insight. I have had that happen scores of time. I believe that all the great ideas are stored in our heads waiting to get out when we work up the courage to give voice to them. I see it as my job to work up the courage to do this as often as possible.

One of the things that is holding us back (I believe) is shame. We are ashamed of what we have done for 28 years now, of all the human misery we have caused by failing to speak out for so long. I think that’s the source of the pain and the anger and the hate. I take no pleasure in causing people to feel shame. My view is that feeling this emotion (which we earned with our behavior over the past 28 years) is the only way out of experiencing more and more and more of it over time. The shame is not going to go away because we ignore it. It’s going to get worse. If we cause the second great depression, there will be MORE shame than there is today. I want to do what I can to prevent that. That’s why I try to tell the story as straight as possible.

I feel that you (and many other smart and good people) want to compartmentalize things. I feel that you want to turn this into a math problem. I do not see this as a math problem. All of the intellectual puzzles were solved decades ago. What has been lacking for 28 years is the willingness to speak up about what we already know intellectually. It’s not enough to understand this stuff. We need to be willing to SHARE what we understand. We need to be willing to put what we understand into words. In today’s world (a world influenced by hundreds of millions of dollars that have been directed to the promotion of Buy-and-Hold Investing), sharing what we know about the realities is going to cause a good number of people a good bit of distress. That’s just the way it is.

We need to respond to that distress with love. The question is — Is the loving thing to pretend that the distress is not there or to take steps to alleviate the distress? I believe that we need to face and overcome the distress. I believe that when that job is done all the rest just follows as easy as eating a piece of apple pie. Knowing about this stuff is a win/win/win/win/win for everyone concerned. In a rational world, there is no possible grounds for opposition. Spreading knowledge of the realities of stock investing is a 100 percent good thing, with no possible downside for anyone concerned.

There was a time when it was not viewed as polite to talk about the evils of slavery. We ended up in war over that one. When people fail to speak up about obvious evils, those evils retain the power to do harm to people. The idea that it is not necessary to take price into consideration when buying stocks is an evil idea. It is rooted in a dark part of human nature, the Get Rich Quick impulse. If we speak up in opposition to this evil, it will lose its power over us; it will be destroyed. This is why I speak plainly. I care about the people being hurt by the evil idea and I want to bring the evil idea down. I see it as my job to employ all my powers of persuasion to achieve that goal.

Again, I am grateful for your concern and for your caring and for your willingness to help. I am happy to interact with you according to whatever terms you specify. If you don’t ask about this aspect of the story, I am happy not to bring it up. If you do ask, I feel an obligation to explain my take as well as I can. I certainly don’t make any demands that you agree. I cannot not believe what I believe so strongly. So I just have to hope that that will be good enough.

Rob

“Find Supporters and Don’t Focus So Much on the Detractors”

by

Recent blog entries have reported on correspondence between a community member named “Larry” and me. Set forth below is the text of an e-mail that Larry sent to me on November 12, 2009.

Rob,

I don’t know your full story so I have no right to judge. My intention is to help you where I can because I think you are really on to something with valuation informed investing.

However, I was thinking about your e-mail today. I remembered the story about Jesus telling his apostles to dust their feet off and move on to the next town because no one was listening. I guess that’s what I was trying to say about the goons and others that will never come around. Dust your feet off and move on to people that will listen.

I’m going to be really transparent. I’m with your brother, wife, and friends on this one. Maybe you should listen a little closer to their hearts. That’s why God places people like them in your life.

I don’t think your battle is to “open the Internet to honest investing posting”. You can’t control that. I think your real battle is educating people about valuation informed investing. Find supporters and don’t focus so much on the detractors. When you are in a battle, you need allies. Focus on finding allies that will carry your message. That’s how battles are won. You will beat the goons by finding more allies and changing your battle strategy.

My other suggestion is to post where you can and let it go. Again, I use Jesus as an example. He did not force his message on anyone. Go to the people that will listen and are open to the truth.

God Bless,

Larry

“The Ideas Were All Developed Through INTERACTION With My Fellow Community Members”

by

Larry:

Recent blog entries have reported on correspondence between a community member named “Larry” and me. Set forth below is the text of an e-mail that I sent to Larry on November 12, 2009.

Thanks for the kind “beyond awesome” assessment. I fully get it that you are trying to bring the positive aspects to the next level. I am of course grateful.

I feel that I need to respond to the point about spending time and energy battling old foes. I hope that you will not take my feeling a need to respond as defensiveness.

The first thing that I need to say is that you are not the only person whom I respect who has said things along these lines. My wife has said things along these lines. John never said it in words but my strong sense is that he would have agreed with you. My brother has said things along these lines. There are others. So there is evidence that I may just have a blind spot here and cannot see something that is obvious to many others.

Still, I believe what I believe re this aspect of things and I think I should make an effort to put what I believe into words so that you are at least clear about where it is that I am coming from according to my perspective.

I feel that any old “foes” (I don’t personally think of the Goons as “foes” although it certainly is fair to say that they view me as constituting some sort of “foe”) have a right to invest however they please. This has never been even a tiny concern to me.

My “battle” is to open the internet to honest posting on investment questions. Not one of the ideas explored at my site was developed by me sitting in a room thinking grand thoughts. They were all developed through INTERACTION with my fellow community members. The process that works is much like the one that you and I are going through in these e-mails. Different thoughts come from different angles and over time people develop better-informed takes as a result.

Hundreds of the people on the boards are friends of mine. I think they have a right to have the discussions that they want to have. And many of these people have things to teach me. I think I have a right to bounce ideas off them and learn from them. The purpose of the “battle” is to make that possible.

I do not care what Greaney thinks about investing any more than I care what anyone else thinks. I had some good times with  the guy. I think of him as a friend because of those good times. But I couldn’t possibly care less how he goes about investing his money. I see that as being his call. The one way in which he has become a concern to me is that he and his Goon Squad stand in the way of a number of boards and blogs permitting honest posting on these questions. I think he should be banned from the boards until he is willing to follow the rules he agreed to follow when he was permitted access. I have been saying so since November 2002. All of the boards that I have posted at prohibit the tactics that he employs to block honest posting.

There’s one more angle here that I believe that you need to consider to develop a full appreciation of why the Passive model is so dangerous. I noted above that all of the boards prohibit the tactics employed by Greaney and Lindauer. That’s evidence that there is a deep feeling among many people that those tactics are unacceptable. Yet only a small number have spoken out in strong terms in opposition to the tactics that have been employed. Does that not say something about how emotional an approach the Passive investing approach is?

I think it does. I think that all of us know on some level of consciousness that the idea that price doesn’t matter when buying stocks is nonsense. We try to ignore the voice inside telling us this but we can never fully pull it off. So it eats away at us. And it makes us emotional when someone comes along and points out what the historical data really says.

I don’t possess an I.Q. bigger than all these experts. So how did it come to be that I am the one writing and speaking about all these exciting findings? That’s a fair question that I think reasonable people should be asking.

I think that the explanation is just that I haven’t had money in stocks since 1996. So I am not caught up in the Passive Investing craziness. I am capable of a level of objectivity that few alive today are capable of. I think that’s part of the story here.

Several financial planners have told me that the reason why they do not talk straight about stock investing is that most investors are far too emotional to handle the truth. I think that the problem is that the conventional advice MAKES them emotional. So this is all circular. Passive Investing makes us incapable of reason and being incapable of reason makes us unable to appreciate strategies rooted in reason.

We need to break this chain. I don’t think we can break it any final sense by writing some super-duper article that lays out all the points (I of course do not mean to say that producing such articles is not a plus). The human mind possesses an incredible ability to rationalize away points that it does not want to take in. But I have seen people slowly come around when they are able to ask questions and step by step come to a better appreciation of the realities. So I am always looking for places where I can help people through that step-by-step process.

The Goons of course want to block that learning process as much as I want to advance it. So we are working at cross purposes. My view is that I am working for a positive purpose and they are working for a negative purpose. I get the sense that they would like me to feel that I should apologize for doing so. I offer no apologies. I am proud of the work that each of the hundreds of people who have made positive contributions has put forward.

I believe that even the Goons would feel a whole big bunch better about themselves if they would make positive and constructive contributions. I have often urged them to do so. I believe that I have done pretty much all that it is possible for me to do in this regard.

I view this as a positive story and I regret it that many characterize it as a negative story because of the ugliness that the Goons have injected into the proceedings. My view is that we should all work together to insure that things always remain positive. I do what I can in this regard. When I am not able to think of anything more of a positive nature that can be done, I let it go and turn my attention elsewhere. I personally do not see what is wrong with this approach. But, again, you are far from the first person I respect who has indicated to me that I am going about things in the wrong way.

If I have done something wrong, I hope that there will come a day when I can recognize that. Until I really do see it, I don’t think it would be right for me to say that I do. I have to just keep doing what seems right in my eyes while making an effort to remain open to the points made by people of good will seeking to steer me in another direction.

Rob

“Beyond Awesome”

by

Recent blog entries have reported on e-mail correspondence between a community member named “Larry” and me. Set forth below is the text of an e-mail sent by Larry on November 12, 2009.

Rob,

I see and understand the difference that you talked about in your note. Buffet has said for years that he hopes the academics keep teaching the Efficient Market Theory in business schools. It helps him with his investing approach.

One of my main points in investing is to avoid catastrophic investment loss. The P/E 10 helps with this goal. I’m just trying to articulate additional benefits of your investment approach. You’ve focused heavily on safe withdrawal impacts in your writings. This is great but as you know there are many more benefits to your approach. I want to finish the position paper and chart so you and others can see the entire spectrum of benefits of the valuation informed investing process.

I think what you have done is beyond awesome. However, I think you spend way too much time and energy battling old foes. I’m just trying to help bring  the positive aspects of your work to the next level.

Larry