A Rich Life

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

Rob Bennett to Wade Pfau: “It is 100 Percent Wrong That People Posting at Bogleheads Feel Intimdated re Posting My Name…. By Using My Name, You Help Others Get Over Their Feelings of Intimidation”

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Yesterday’s blog entry described two emails that researcher Wade Pfau sent me on December 18, 2010. It also set forth the text of my response to the first of those e-mails. The text of my response to the second of those e-mails is set forth below.

Wade:

Thanks for putting an apology in the new post. That’s fine. I think it is especially good that you mention my name in the new post. It is 100 percent wrong that people posting at that board feel intimidated re posting my name. It obviously is not only you who have felt that intimidation. Lots of good and smart people have felt it and the discussions there obviously would be much more productive if people did not feel that. By using my name, you help others to get over their feelings of intimidation.

Drip Guy is a Super-Goon. I am not saying that you should not respond to him. The points he made in his post needed to be addressed. I am just pointing out that he has a long history of posting with bad intent on numerous boards. It would be wonderful if you got somewhere with him but I don’t see the odds as being good.

The point that matters most from my perspective is where Drip Guy says: “That is, if you had chosen to blindly withdraw 4% per year from a nest egg, it would have lasted at least 30 years until depletion, with 95% conf.” It is this way of saying things that is the cause of most of the confusion, in my assessment. It is of course an objective historical fact that 4 percent always worked in the past. 4 percent is the Historical SURVIVING Withdrawal Rate. There is certainly no question in my mind re that.

What I do not get at all is how he can say that a 4 percent withdrawal could be taken “with 95% conf.” Looking back, we know that 4 percent worked. So, looking back, you could take 4 percent with 100 percent confidence. But a determination of what is safe is by definition a forward-looking concept. The entire idea of having confidence in something only makes sense if you do not know what is going to happen. So the confidence percentage must take into consideration the factors that were unknown to the retiree at the time be began his retirement.

We know the range of possible returns starting from any possible valuation level. What we do not know is what particular returns sequence is going to pop up. Say that the retirement began in 1929. In 1929, 50 percent of the returns sequences that we have seen in the historical record permitted a 4 percent withdrawal to work and the other 50 percent caused a 4 percent withdrawal to fail. So it seems to me that the confidence level for a retiree taking 4 percent for a retirement beginning in 1929 is 50 percent, not 95 percent.

Yes, that retirement worked. But not because it was safe. A retirement that has only a 50 percent chance of working out cannot be retroactively characterized as “safe.” It was a risky retirement plan that worked because of good luck (a good return sequence happened to pop up). I am not able to think of any other field of human endeavor in which we determine what is “safe” by seeing what worked in two or three tests.

Say that we wanted to find out whether drunk driving is safe or not. We test 100 drivers driving 20 miles. 98 of the drivers are sober. 2 are drunk. The 98 drive the 20 miles without incident. The 2 get in major accidents and live but are crippled for life. Would we conclude from this that driving drunk is “safe”?

That’s what we are doing with the Old School SWR studies. A 4 percent withdrawal usually works with lots of room to spare. But it always means trouble for retirements that begin at times of high valuations. Prior to the 1990s, there were
only two times of super-high valuations in the modern record. On both of those occasions, 4 percent barely worked (although it worked with lots of room to spare on all occasions when valuations were not super-high). No, the 4 percent withdrawal did not bring death in either of the two tests (that is, the portfolios did not go to zero). But it came awful close in both cases. Is this not telling us that 4 percent is a high-risk withdrawal rate for retirements beginning at times of super-high valuations?

It seems to me that the Old School SWR methodology is telling us the Historical Surviving Withdrawal Rate. That’s a very different concept than the SAFE withdrawal rate. To determine what is safe, we need to look at the factors that determine what is safe. The record shows that the single most important factor is the valuation level that applies on the day the retirement begins and yet the Old School studies contain no valuations adjustment whatsoever. How could they possibly tell us what is safe if they do not even look to the factors that determine what is safe? This is why I say that these studies are “analytically invalid.”

Rob

Wade Pfau: Bogle in Many Cases Has Said Things “Not All That Different From What You Said”

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Yesterday’s blog entry set forth the text of a an e-mail that I sent to academic researcher Wade Pfau on December 16, 2010. Wade responded the next day.

Wade said in his December 17 e-mail that: “In thinking about it further, I owe you further apology as my comment was based on a misunderstanding about your past claims.” He explained that: ” I understood that you meant this as the safe
withdrawal rate, but somehow I still confused myself into thinking that this number represented your prediction for the actual withdrawal rate.  If it was a prediction, then naturally you would need to indicate the uncertainty surround it.  But it is not a prediction.  It is just a lower bound that should be safe. So you don’t have to be so worried about its precise value. ” He speculated that the person who had suggested in an earlier thread at the Vanguard Diehards board that I had been dogmatic in my posting “made a similar mistake” and that this mistake “confused my ability to understand your response.”

He added that “actually I am a neophyte to the whole withdrawal rate debate.  I didn’t even know about Bengen or the Trinity study until July” but “now I am quite interested in this topic.”

Wade expressed confusion over “why some Bogleheads are so threatened by using valuations.” He noted that John Bogle has in many cases said things “not all that different from what you said.”

He concluded the e-mail with a kind compliment. He said: “I should also just say that you are a very good writer….Your writing really commands attention.”

The text of my response is set forth below:

Wade:

That all sounds good.

Please enjoy your week away. I expect to send you an e-mail next week that will provide a link re your question about the timing of John’s work and perhaps address a few other substantive points. But I of course understand that you will not see it until the following week.

Bernstein’s discussion of SWRs is on Page 234, if I recall correctly. I have cited it so many times over the years that I have the page number memorized. The claim that I often make is that the Old School SWR studies are “analytically invalid” and I often cite Bernstein’s words in support of this claim. One of my fellow community members who does not like me using that phrase sent Bernstein an e-mail asking him if he agrees that the Old School studies are “analytically invalid.” Bernstein said that “of course” they are analytically valid. But he followed that up by saying that anyone giving thought to using one of them to plan a retirement would be well-advised to “FuhGedDaBouDit!” That’s the point that I mean to convey with the claim that they are “analytically invalid”! The purpose of the studies is to help people plan retirements. They are not designed in such a way as to be able to do that effectively. So in my eyes they are analytically invalid. They do not the job that they were set up to do.

It may make you feel better to know that John Walter Russell also made the mistake of confusing the number that is at the lower bound of the confidence interval (the SWR) with the number most likely to turn up. John and I exchanged about 10 e-mails on this point a long time ago. I agree with you that there’s a good chance that the other poster in the thread you read was making a similar mistake. This is not intellectually difficult stuff (at least not the parts that I understand — I have no background with the statistical tools). But there is an undercurrent here that is EXTREMELY counter-intuitive. I have seen it throw many smart and good people off track. I of course would like to be able to figure out how to communicate the points in a way that avoids the confusion that enters into just about every discussion of these matters. I have picked up some clues as to how to do that over time. But it is the hardest job that I have ever tackled in my life. The way to spin this in a positive way is to observe that, if the confusion is today very deep, the prospect of making a giant leap forward in our understanding of how stock investing works once we overcome the confusion is also great.

Your words about John Bogle are 100 percent right on! It was by reading Bogle’s “Common Sense on Mutual Funds” in the mid-1990s that I got on the track that I am now on. I am the biggest Boglehead in the world. The investing strategy that I recommend is called Valuation-Informed Indexing. It is a mix of Bogle’s best ideas and Shiller’s best ideas. I say that Bogle and Shiller go together like chocolate and peanut butter. The thing that I say that some view as anti-Bogle is that Bogle made the biggest mistake in the history of personal finance when he said that it is possible to “Stay the Course” without being willing to change your stock allocation in response to big valuation shifts. But I don’t see it as being such a big deal that Bogle made a mistake. We obviously all make mistakes and Bogle’s ideas have led to many breakthroughs (including Valuation-Informed Indexing — there clearly would not be any VII today without the insights contributed by Bogle).

It may be that some of the anger felt by some of the Bogleheads is BECAUSE my ideas are so influenced by Bogle’s. The angry ones could dismiss my ideas easily if they differed in many ways from Bogle’s. Because they are so closely related,
it is hard for them to dismiss them. Yet the strategy recommendations are very different. In January 2000, a Valuation-Informed Indexer would probably have been going with a stock allocation of about 10 percent. A Buy-and-Holder would
probably have been going with 70 percent. That’s a big difference! My only difference with Bogle is over the valuations question, but valuations are so important that we often end up in very different places.

As you note, it’s not that Bogle rejects the idea that valuations affect long-term returns. I learned this from him! It’s that Bogle does not IMPLEMENT the insight. He SAYS that valuations matter. But his allocation recommendations do not take valuations into account. That’s the entire deal. That’s the only real question in dispute in the eight-year-long debate.

Bogle said in an interview that he thinks VII can work:

http://arichlife.passionsaving.com/2009/07/28/bogle-says-valuation-informed-indexing-can-work/

But when I sent him an e-mail asking for his help in dealing with the abusive posting, he did not respond:

http://arichlife.passionsaving.com/2009/07/30/my-hope-is-to-persuade-you-to-steer-the-indexing-revolution-to-a-more-promising-path/

Please have a great week away from all this and perhaps we will be able to talk over some ideas for further research when you get back. There are all sorts of possibilities. I can assure you that I had zero idea what I was getting into when I put up that first post back on the morning of May 13, 2002. This is a deep well!

One last point. Over the years I have had a number of people ask me about international SWRs. It sounds like your recent paper will go a long way to answering their questions. I will definitely be checking it out and linking to it in future days.

Rob

“We ‘Know’ All Sorts of Things About Investing Today That We Do Not Want to Acknowledge That We “Know. My Aim Is to Harvest This Unappreciated Knowledge.”

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Yesterday’s blog entry described an e-mail that I received on December 16, 2010, from academic researcher Wade Pfau. Set forth below are the words of my response.

Wade:

Thanks for your response.

All is forgiven from my end. All of the points you make in your response make sense to me. There is no question that this is explosive stuff and it is hard at times to say things perfectly. I of course struggle with that same issue. So long as there is good intent, things work their way to a good place. I can assure you that there is good intent on my end. I am reassured by the words of your response that there is good intent on your end.
Differences on fine points are of course not a problem. Those sorts of differences are to be expected and are healthy.

There has been HUGE interest at that board in SWRs in the past. I believe that the reason why you did not see a response is that people there feel shame over how the board has handled this issue. Part of it is how they interacted with me and part of it is how they misled people re the issue (it is a reality that people were misled — the best interpretation that can be put on it is that the people putting forward the misleading stuff were suffering from cognitive dissonance).

The personality clash is with SOME Bogleheads, not all Bogleheads. There are some great people over there who would love to have me participate in the discussions held there. They are (understandably) afraid to speak up. When a segment of a board community fears stating its honest views, the board had lost its intellectual integrity; people are not hearing both sides. It doesn’t make me happy to say this. But it needs to be said.

I am grateful for you spelling out the cause of your concern by saying: “The thing that troubled me was how sure you were about your predictions.” I believe that there is a misunderstanding here. I am NOT dogmatic about the particular predictions. I do not believe that dogmatism re that aspect of the question is justified. I love it when someone like yourself puts forward a different reasonable take. That gets people thinking. We need more debate, and dogmatism will not get us that.

My guess is that the thing that I was being dogmatic about in the comments you have in mind was the idea that SOME adjustment must be made for valuations. I do see it as being irresponsible to make no adjustment for valuations whatsoever given the consequences that follow for retirees who place their confidence in SWR studies that get the numbers wrong. My view is that there is an INSANE level of dogmatism coming from some of the defenders of the Old School studies. If they could just acknowledge that there is more than one reasonable point of view, we could all be friends.

Anyway, I very much do NOT believe that dogmatism is justified re these matters. It does indeed sting for me to hear myself described as being dogmatic here because I have invested so much in the way of blood, sweat and tears into efforts to bring the dogmatism to an end and to get things pointed in a more positive direction.

There’s an awful lot of material at those links. I certainly don’t expect you to look at all of it. You probably would prefer to focus on materials that deal with substantive matters (most of those materials focus on the process questions). I will get some links on substantive matters to you within the next few days.

Still, you might want to spend a little bit of time looking at the links that focus on the process questions. I have spent an awful lot of time on the SWR matter and on related matters and I have come to believe that the full reality is that there ultimately is a great deal of overlap between the substance issues and the process issues. I am going to put forward one illustration of what I mean by this just to give you a sense of what I am getting at.

You mentioned that you were not aware of the SWR controversy until September of this year. That should not have been the case! Bill Bernstein does rough calculations in his book “The Four Pillars of Investing” showing that the SWR at the top of the bubble was somewhere near 2 percent. Unfortunately, even most people who have read the book are not aware of this because he wrote it up in such a way as to downplay the finding. And of course the finding was not front-page news in the major papers, as I very much believe it should have been.

There are all sorts of issues like this. We “know” all sorts of things about investing today that we do not want to acknowledge that we “know.” My aim is to harvest this unappreciated knowledge. I do not by any stretch of the imagination believe that I have all the answers. But I do believe strongly that we need to launch a debate. I had a reputation prior to my involvement in the SWR debate of being a “teddy bear” poster. I am likely one of the least confrontational people you know. My problem re this matter is that there are a good number who object violently even to the idea of having  a discussion. And discussion boards at which critically important issues may not be discussed rarely achieve their full potential.

I regret that you have had to sort through all this drama. But I will direct a phrase to you that you have used in reference to me. There is something in you that saw an issue of some importance when you happened across the thread on SWRs. YOU are really on to something in seeing the significance there (many smart people have failed to see it). I hope that perhaps I will be able to point you to some things that perhaps will spark further fruitful investigations.

No dogmatism. That’s out! The aim here is exploration of potentially exciting new realities. It’s been my goal since the first day to bring out the positive in all this (which in my assessment is so far-reaching that it is scary) and to leave the boring, time-wasting stuff behind. That’s what I’ll be trying to pull off in future communications.

Thanks again for responding to a challenging e-mail in a warm and honest and frank and encouraging way. That gives me some hope (combined with a few other recent developments) that this saga may be taking a bit of a turn in a life-affirming direction.

Rob

Wade Pfau: “I Was Trying to Pay Tribute to Your Accomplishments in What I Knew Would Be a Hostile Environment”

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Yesterday’s blog entry contained the text of an e-mail that I sent to academic researcher Wade Pfau on Dec. 16, 2010.

Wade sent me an e-mail in response saying that: “I’m sorry for offending you. I’ve removed that post from Bogleheads. I will think about adding a new post to start over later and to express your accomplishments differently.”

Wade told me that he did not view his post as defamatory. He said that he had read enough material at the Bogleheads board to know that I was not well liked “by them” and noted that I had been referred to at the board as a person who could not be named. He added that he tried to be respectful to me in his post. He argued that most of his comments about me were positive and explained that “I was just trying to give you credit for your contributions in the context of knowing that this will not be well received at Bogleheads.”

Wade maintained that the negatives he used in reference to me “I don’t think are so negative” because “I think you were really on to something.” However, he added that “the thing that troubled me was how sure you were about your predictions, and how you asserted the correctness of those predictions in the face of criticism.”

At that point, the e-mail turned to a specific point. John Walter Russell’s research showed that, at the top of the bull market, the safe withdrawal rate for a retirement portfolio with an 80 percent stock allocation was 1.6 percent real. Wade observed that: “That 1.6 is not a point estimate from the regression, but the lower bound of a confidence interval that has to be defined in a fuzzy way because correct confidence intervals cannot be estimated due to the overlapping observations problem.  That means there has to be some doubt about the correct number. ”

Wade concluded his e-mail by apologizing for offending me but suggested that I had overreacted. Overall, “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”

Finally, the e-mail states that “I think we are basically on the same side.” Wade said that he had not looked at the links set forth in my e-mail to him but that he hoped to do so soon.

Rob

Wade Pfau: “I Just Became Aware of Your Past Research in September…. I Always Find Your Writing to Be Very Interesting and Intriguing”

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I will over the next few weeks be putting forward here summaries (in the case of Wade’s end of the conversation) and full texts (in the case of my end of the conversation) of my e-mail correspondence with Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Economic Studies.

Our communication (and friendship) began with a comment that Wade put to the blog on December 16, 2010. Wade on that day put a post to the Bogleheads Forum that was influenced by the work that I have been doing since May 2002 on safe withdrawal rates and on the Valuation-Informed Indexing model for understanding how stock investing works.

Wade wrote: ” I just became aware of your past research in September.  Since then, I’ve read archives from many Discussion Boards and websites, and I always find your writing to be very interesting and intriguing….” Wade described retirement research he had done and linked me to the research, saying “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach.” He solicited my comments, noting that there was still time to make improvements to the research before submitting it to a professional journal (the version at the link was a draft version).

I responded by sending Wade an e-mail containing the following words:

Wade:

I was excited to see your comments re the safe withdrawal rate issue this morning. I also was happy to see you express a desire to discuss some of these issues in more depth. I think that would be wonderful. I would like to help in any way
possible. We have done extremely important work in the Retire Early and Indexing communities over the past eight years and we need to get more professional research done and to get the word out to people whose retirements are at grave risk of going bust due to the analytical errors made in the Old School SWR studies.

I was shocked and appalled to see the words you put to the Bogleheads.org board this morning. You said: “After reading through lots of historical message board threads and personal websites, I understand that this topic can be rather controversial, though I think much of that controversy was due to a personality clash between the main supporter of using market valuations (who remained rather dogmatic and sure of the absoluteness of his predictions) and everyone else. It seems that this person is no longer mentioned by name, though I do cite him in the paper and I do think he was on to something important, even if he did not always convey his message very well.”

The person you are referring to is obviously me. The words you use to describe me and the role that I have played in The Great Safe Withdrawal Rate Debate are 100 percent inappropriate. My guess is that you are merely repeating defamatory comments that you have heard from abusive individuals posting to discussion boards. It is not appropriate for you to do that. If you have not checked the truth of a claim, it is wrong for you to repeat it as if you had. By doing so, you give the impression to others that there may be some truth to the claim.

I will provide here some links to help you come to a better understanding of the background of the Campaign of Terror that was led by Mel Lindauer (co-author of the book “The Bogleheads Guide to Investing”) and John Greaney (the author of the Old School SWR study posted at the www.RetireEarlyHomePage.com site) in an effort to shut down honest discussion of the SWR matter at all boards and blogs on the internet.

1) My bio is here:

http://knol.google.com/k/rob-bennett/rob-bennett/1y5zzbysw7pgd/4

2) This is a link to the home page of my blog. Down the left-hand side of the page, you will see 85 comments by both big-name experts and ordinary people who have become aware of my work and are appreciative of the insights they have picked up:

http://arichlife.passionsaving.com/

3) Here is a link to an article at my site titled “Investing Discussion Board Ban Honest Posting on Valuation!” It sets forth 101 comments by community members who have expressed a desire that honest posting be permitted at the Vanguard Diehards board (this is the board where the community that now meets at Bogleheads.org met before Mel Lindauer became incensed at Morningstar’s refusal to ban honest posting on the SWR topic and encouraged community members to form a new site where he could enact a ban on his own):

http://www.passionsaving.com/investing-discussion-boards.html

4) This is a link to a similar article quoting comments made by community members at an earlier stage of the debate, when the discussions were being held at the Motley Fool site:

http://www.passionsaving.com/community-comments-on-the-great-safe-withdrawal-rate-debate.html

5) This is a link to the site owned by John Greaney, the author of one of the discredited studies and one of the leaders of the Campaign of Terror against our board communities. Greaney was the first person to make death threats against community members who dared to “cross” him by posting honestly on the SWR matter. When hundreds of community members at the Vanguard Diehards board expressed a desire that honest posting be permitted, Lindauer invited Greaney and his Goon Squad to that board as part of his effort to intimidate and smear those posting honestly:

http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?board=HOCO

6) Here is a link to the text of an e-mail that I sent to Rep. Frank Wolf seeking his help with the problems raised by the internet sewer rats who have put forward posts in “defense” of Lindauer and Greaney:

http://www.passionsaving.com/internet-harassment.html

7) Here is a link to RobCast #190, titled “Lawsuits.” This podcast discusses my plans to bring lawsuits (and to encourage lawsuits by other parties who have suffered financially) against those who have aided or defended or supported the efforts of the internet sewer rats to block the desires of the thousands of my fellow community members who have expressed a desire that honest posting be permitted on the internet on SWRs and on many other important valuation-related investment topics.

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

I am very excited about the possibility of working with you on constructive projects. I think you will understand after reviewing these materials why I have precisely zero willingness to get involved in any way, shape or form in efforts to employ defamation, deception, intimidation, harassment, smear campaigns and threats of physical violence to block honest posting on SWRs and other important valuation-related topics on internet discussion boards and blogs. I am confident that you agree that such sick ugliness has no place in discussions of important investment topics.

I would be grateful if, after reviewing these materials, you would let me know how you plan to proceed re this matter.

Rob

VII #90 — The Correlation Between P/E10 Values and Long-Term Returns Is Stronger Than Most Realize

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I’ve posted Entry #90 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Correlation Between P/E10 Values and Long-Term Returns Is Stronger Than Most Realize.

Juicy Excerpt: The stock price that applies on any given day is a COMBINATION of short-term and long-term effects. If the theory behind the VII model is correct, the short-term effects should always be pulling the data in the direction of showing no correlation and the long-term effects should always be pulling the data in the direction of showing a perfect correlation. The combined effect of the two contrary forces should be data showing a strong but imperfect correlation and one that grows as the time-period lengthens.

That is precisely what we see when we look at the 140 years of data.

If the VII model properly explains how stock investing works, we should not be expecting to see a perfect correlation when we compare the P/E10 value that applies on the day of a purchase and the long-term return produced in the years following that purchase. We should be expecting to see a strong but less than perfect correlation. That’s the correlation that appears on our computer screens when we generate graphics showing to us in pictures the story that the historical stock-return data has been trying to tell us for 140 years now.

VII #80 — We Have Forgotten the Purpose of Investment Research

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I’ve posted Entry #80 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called We Have Forgotten the Purpose of Investment Research.

Juicy Excerpt: An entire industry has been built up to promote Buy-and-Hold. Thousands of books have been written. Hundreds of calculators have been developed. Millions in marketing dollars have been directed to the promotion of this model. Many people in the field hate to think about how big a job we have in front of us once we openly acknowledge that the model has been discredited by 30 years of academic research.

Still, the purpose of investment research is to help people become successful investors. That means that we mustcorrect retirement studies that get the numbers wildly wrong. Studies that get the numbers wildly wrong do not serve the purpose for which investment research is conducted. They undermine that purpose. As millions of middle-class people suffer failed retirements, more and more investors will lose confidence not only in the investment research that has long been discredited but in all investment research.

“Buy-and-Hold Is Promoted As Being Rooted in the Academic Research”

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Set forth below is the text of a comment by Drip Guy and my response, both taken from a recent thread at this blog.

Rob,

Your attempted analysis of me is wrong in about every way! But you believe what you want to believe; it’s no skin off my nose.

BTW, you say: “I have never seen this sort of behavior from people following any other investing strategy. ”

Well, I suspect that is becasue you simply have not imposed yourself other places. So, let’s wait until your market timing ideas lead you some where else, like a Quant analysis or TA forum or other ‘pet approach’, and then just be your usual self, Rob, and let’s watch to determine how those investors of other persuasions respond to you. Should be fun to observe from the sidelines!

The real reason you get heat from buy-n-holders, is because you for some reason have chosen to single out that very tame, baseline approach to rail against.

Go tell any other forum that they are all “doin’ it wrong” and I’m sure you will get similar replies to what you got when you were banned at those prior 15 finance forums! (laugh)

 

The real reason you get heat from buy-n-holders, is because you for some reason have chosen to single out that very tame, baseline approach to rail against.

I think you are making a reasonable point here, Drip Guy. But you are also leaving out an important part of the story.

Buy-and-Hold is not just any old “pet approach” (the phrase is from elsewhere in your comment). Buy-and-Hold is promoted as being rooted in the academic research.

But it is not!

There is now 30 years of academic research that shows that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind, one so dangerous that it is sure to wipe out most of the wealth that the middle-class has accumulated in recent decades and one so pure that it is likely to bring on an economic crisis that will take us all to the Second Great Depression.

All investing strategies are marketed. That’s part of the game. But Buy-and-Hold is special in this regard. Buy-and-Hold’s big marketing edge is the claim that it is rooted in academic research. And this is a demonstrably false claim. That’s over the line, Drip Guy. There are responsibilities taken on when you claim in your marketing materials to be following the academic research. The Buy-and-Holders have failed to honor these responsibilities.

An investing strategy that causes an economic and political collapse cannot fairly be referred to as a “very tame, baseline approach.” This Get Rich Quick garbage is pure poison. It has taken in millions of investors. It has delayed millions of retirements. It has caused huge unemployment numbers. It has caused the destruction of numerous blogs and discussion boards.

It is this claim that Buy-and-Hold is rooted in academic research that makes it different. Buy-and-Hold would not have 1/50th of the power to persuade that it today possesses if not for that claim. And that claim is demonstrably false. Shiller’s research is publicly available on the internet to anyone who cares to look for it.

Once the Buy-and-Holders learned that the entire historical record discredits their claims that there is no need to change one’s stock allocation in response to big valuation swings, they should have stopped making those claims. I did not cause this problem. I reported the safe withdrawal rate accurately. The reason why people were shocked to hear the accurate numbers is that The Stock-Selling Industry has directed hundreds of millions in marketing dollars promoting precisely the opposite of what the last 30 years of academic research says.

The boards that I have posted at are not even boards that were set up solely for Buy-and-Holders. The Motley Fool board was a Retire Early board. Accurate retirement numbers are obviously in place there. So the Buy-and-Holders had no right to burn that board to the ground. The Morningstar rules state clearly that all posters are permitted to post honestly on what the academic research says. Again, the Buy-and-Holders were 100 percent off base to destroy the integrity of that board with their abusive posting.

Why did they do it? Because it makes the Buy-and-Holders look absolutely horrible for people to learn that it is all a con, that there is no research showing that there is no need for investors to engage in long-term timing.

The problem needs to be fixed. We need to provide a means for middle-class investors to hear accurate and honest reports of what the academic research says re stock investing. I am happy to work with the Buy-and-Holders to make this happen so long as they are willing to honor the behavioral norms that apply in our society in discussions of every subject other than stock investing. I am not willing to post dishonestly on safe withdrawal rates or any other topic. The very fact that a good number of Buy-and-Holders demand this as a condition of posting to “their” boards illustrates how deep the problems go with this investing “strategy.”

Marketing tricks and claims of support in the academic research do not mix, Drip Guy. Valuation-Informed Indexing is what Buy-and-Hold started out being. Valuation-Informed Indexers report what the academic research says accurately and honestly. People need to know that and people need to know that the claims of Buy-and-Holders that they do that have been demonstrably false for 30 years now. Help me spread the word re that, and we will be best friends. Stand in my way and I think it would be fair to say that we will find ourselves working at cross purposes.

Rob

ITNR #85 — Using Numbers to Pop the Fantasy Balloons of Buy-and-Holders

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I’ve posted Entry #85 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Using Numbers to Pop the Fantasy Balloons of Buy-and-Holders.

Juicy Excerpt: There’s something that I am doing that is causing large numbers of people not just to disagree with me but to hate me.

Beyond Buy-and-Hold #59 — All Studies That Support Buy-and-Hold Are Analytically Invalid

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I’ve posted Entry #59 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called All Studies That Support Buy-and-Hold Are Analytically Invalid.

Juicy Excerpt: This is true of every study that has been done under the Buy-and-Hold model. All of the studies really say what the Buy-and-Holders say they say. But they are all set up in the way that Jacob’s test was set up, that is, without valuation adjustments. In the eyes of Valuation-Informed Indexers, every study that has ever been performed under the Buy-and-Hold model gets all the numbers wildly wrong. We believe that valuations are the most important factor. Any study that ignores the most important factor must get the numbers wildly wrong.