A Rich Life

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

VII #75 — Bogle’s Crazy, No-Good, Terrible, Mixed-Up 15 Percent Rule for Tactical Asset Allocation

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I’ve posted Entry #75 to my weekly Valuation-Informed Indexing column at the Value Walk web site. It’s called Bogle’s Crazy, No-Good, Terrible, Mixed-Up 15 Percent Rule for Tactical Asset Allocation.

Juicy Excerpt:  Bogle has never said. He has cited the 15 percent rule on numerous occasions. He has never once explained where it came from.

I have a hunch.

I think he pulled it out of the air.

I really do. I think he recognized that an absolute prohibition on market timing sounds too dogmatic. So he felt a need to note an exception to the general Buy-and-Hold rule. But his heart wasn’t in it. So he made the exception so tiny that it’s not likely to make much difference. So long as none of his followers ever see much benefit from market timing (which they cannot if they limit their allocation shifts to 15 percent), it will be hard for anyone to appreciate how much following a Buy-and-Hold strategy sets an investor back and the dominant Bogle idea (that market timing is not required) will remain in effect.

“It’s Not a Mistake When John Bogle Fails to Do Anything About the Lindauer Matter After I Have Sent Him Three E-Mails Asking for His Help”

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Set forth below is the text of a comment that I recently put to the Goon Central board in response to a question from Drip Guy.

Before you came to enlighten the World, everyone who mentioned SWRs before you was lying?

Was everyone who believed years ago that the earth was the center of the universe lying, Drip Guy?

Humans don’t know everything. We learn over time. I was certainly the first person who reported the SWR accurately.

Now — was Greaney lying when he said that I was on medications and that I stalked women?

Obviously.

So he made a mistake and then lied to cover up the mistake.

How about Scott Burnszzz and the other “experts” who made clear that they are aware of the research showing that valuationszzz affect long-term returns and yet have done little or nothing to get the Old School studies corrected?

Are they lying? I think it would be fair to say that they are not behaving with a high degree of integrity. How would you feel if you were one of the millions of middle-class investors who will be suffering a failed retirement because of their failure to speak up?

Our economic crisis started with a mistake, the idea that the market is efficient. But it’s not a mistake when John Bogle fails to do anything about the Lindauer matter after I have sent him three e-mails asking for his help. If Bogle were a used car salesman, I think it is clear that he would not permit the sorts of people who have put up posts in “defense” of Lindauer to post at a board with his name in the title. Why does he do it as an investment expert in which millions of middle-class people have placed their trust? Should the ethical standards that apply in The Stock-Selling Industry be that much below those that apply in the used car business?

I say “no.”

I find no fault with those who developed mistaken ideas about how stock investing works in the days before all of the research was available to us. I view that as just one of those things.

But, yes, I absolutely think that people should correct their mistakes when they learn of them.

If you want to say that the errors in the Old School studies were just mistakes in early 2002, I have no problem with that. That’s what I think too.

But I put forward the post that kicked off The Great Debate nearly ten years ago. Are we to believe that it’s all just an innocent mistake to this day?

We are going to need to rebuild the economy that was destroyed through the relentless promotion of Get Rick Quick strategies for 30 years after the research was published showing that Get Rick Quick never works. I am going to do my part to defend those whom I view as pioneers in the field. I certainly include people like Bogle and Burns in that group. But I am not going to lie in their defense. I am going to spin things in their favor to the greatest extent possible. But I am not going to say that Burns wrote a series of articles demanding that the Old School studies all be corrected as soon as he received my e-mail or that Bogle demanded the removal of all posters who had posted in “defense” of Lindauer or Greaney as soon as he became aware of what the Sewer Rats were doing to the Vanguard Diehards board.

What I conclude about these matters is not going to count for all that much in the grand scheme of things, Drip Guy. It’s what millions of middle-class investors whose lives are in the process of being destroyed in this economic crisis conclude that matters.

I will be in there pitching, putting things in the most positive light possible for the Buy-and-Holders. But there are limits to my powers of persuasion, Drip Guy. I think it would be fair to say that the Buy-and-Hold dogmatics are not exactly making my job an easy one.

If you cared about your long-term self-interest one-tenth as much as I care about your long-term self-interest, I think it would be fair to say that these matters would have been put to rest in the Spring of 2002.

I will continue to extend the hand of kindness to you and to all others who have gotten caught up in all the ugliness visited on us by the Internet Sewer Rats who have elected of their own volition to put up posts in “defense” of Lindauer and Greaney. But I won’t post dishonestly on SWRs. If you think I will, you’re living in a dream world. It would be cruel of me to suggest to you that any fantasies you are counting on in this regard have even the tiniest chance of ever coming true.

Be well, my old friend.

Rob

“I Have Never Seen Bogle Correct the Lindaurheads. That Suggests That He Does Not Have a Big Problem With What They Tell People.”

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Set forth below is the text of my response to a comment advanced by “Arty” to the discussion thread or a recent blog post here:

But just so we are on the same page, what are the precise quotes from, say, Bogle, that are “get rich mumbo jumbo”?

Please understand that Bogle is one of my heroes. I view him as a giant in the field. There would be no Valuation-Informed Indexing without John Bogle. I learned as much from Bogle as I learned from any other expert, including Shiller and Russell.

That said, the sort of thing that Bogle says that causes huge trouble for millions of middle-class investors is his injunction to “Stay the Course!” What does that mean?

If it means “try to keep your risk profile roughly stable,” Bogle is the leading advocate of Valuation-Informed Indexing alive on Planet Earth today. It’s not possible to keep your risk profile stable without changing your stock allocation in response to big valuation shifts. So, if that’s what the phrase means, Bogle and I are soul brothers.

But that’s not how the Lindauerheads interpret “Stay the Course.” The Lindaurheads say that it means to stay at the same stock allocation. That’s the opposite of maintaining the same risk profile.

Bogle won’t tell us what he means. I offered to make a presentation to the annual Bogleheads conference and to ask him that question and find out what he thinks and the owners of the forum elected to start a new forum to escape me and my annoying questions rather than to permit me to ask those questions in a public meeting. So I think it would be fair to say that there is some funny business going on re these matters, Arty.

I know that the Lindaurheads interpret what Bogle says in very dangerous ways. I don’t know precisely what Bogle thinks because he won’t answer questions about these matters. I have sent him three e-mails trying to learn more about what he really believes. But he has not responded to those e-mails.

I have never seen Bogle correct the Lindauerheads. That suggests that he does not have a big problem with what they tell people.

That’s pretty much all I can say about this topic, Arty. I wish that some others would get involved and try to find out in more detail precisely what Bogle believes. We need Bogle promoting Valuation-Informed Indexing. That would be huge. And he has indeed said many things supportive of VII. But I don’t think that I can quite say today that The Big Guy has endorsed VII. I wish I could.

If anybody has any ideas as to what I might do to persuade him to make a flat-out endorsement, I would be grateful to hear them. Once we get that endorsement from The Big Guy, I believe that we are on our way to bringing this economic crisis to an end.

Rob

“Bogle Is Going to Get a Huge Portion of the Credit for Valuation-Informed Indexing. I Am Going to See to It”

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Set forth below is the text of a comment I put to the thread associated with my recent Guest Blog Entry titled What Bogle Says About Valuation-Informed Indexing:

To me, Bogle’s remarks are cryptic and vague. It does him injustice to speculate what he is really thinking. Would he not be interested to explain these remarks more fully if asked?

This is the best we are going to get out of Bogle for the time-being, Jon. I have written him three e-mails asking for clearer statements and not received a response. I also offered to make a presentation to one of the annual Bogleheads meetings at which Bogle appears and have Bogle respond to the points made. The leaders of the group responded to that one by shutting down the board and moving it to a new place where they could control who was permitted to speak and then banning me.

Bogle says opposite things on valuations in almost every speech he gives. He always says that valuations affect long-term returns, which is true. But he also always says that investors do not need to change their allocations in response to big valuation swings, which cannot possibly be true if valuations affect long-term returns.

The root problem here is that our understanding of how stock investing works is primitive. We put some important pieces together in the days when Buy-and-Hold was developed (for example, it really is so that short-term timing doesn’t work), but we did not at that time know all there was to know. In later years, we got more pieces to fit in an intellectual sense. But the people who had been promoting Buy-and-Hold did not want to admit that they had made mistakes in their first-draft effort. So we got no corrections. We are today in a strange Twilight Zone in which those who are familiar with the academic research know (at least intellectually) that Buy-and-Hold can never work but dare not say so publicly. Those who say so publicly are shunned by everyone else in the field because all feel embarrassed for the human misery they have caused (not by being wrong, which is nothing, but by not acknowledging the mistakes when they were brought to their attention).

There is no injustice being done to Bogle by quoting his words. He sounds confused because he is confused. He very, very, very much wants to believe that Buy-and-Hold can work. He feels that his entire reputation is riding on this. But he is not able to explain the academic research of the past 30 years. Contrary to popular belief, there has never been a single study showing that timing doesn’t work. There are lots of studies showing that short-term timing doesn’t. But every study of long-term timing shows that it always works. So the statement “timing always works” is every bit as true as the statement “timing never works.” Whether timing works or not is entirely dependent on what form of timing it is that you are practicing.

It is the people who advise Bogle to keep this covered up who are doing him a great injustice. Bogle is a giant in this field. He is responsible for perhaps a dozen of the most important insights in the history of stock investing. Valuation-Informed Indexing is the future. VII is as much John Bogle’s creation as it is Rob Bennett’s creation. All I did to develop VII was to take Buy-and-Hold and drop out the Get RIch Quick stuff (Bogle did not know it was Get Rich Quick stuff at the time he adopted it because the research showing this had not yet been done at the time). VII is going to permit all middle-class investors to retire five to ten years sooner than they can hope to today. It is a huge advance. And Bogle is going to get a huge portion of the credit for it. I am going to see to it.

The only thing Bogle ever did wrong was to fail to make the changes when the research showed that they were needed. Bogle talks about this sort of possibility in one of his books. He says that, if ever he makes a mistake, he hopes that his friends will point it out to him. I am the biggest Boglehead in the world. I am the man’s friend. So I have done what he has said he wants me to do and what I would want him to do if the places were changed.

Bogle is hurting himself today. He is human and he has given in to feelings of pride. We all are capable of doing such a thing. We all should be seeking clear answers from him, not to embarrass him but to get things back on the right track for him and for all the rest of us too.

Bogle is in pain at the moment. He has done wonderful work for us for many years. He made one perfectly understandable mistake (there are lots of smart and good people who made the same mistake). He is now engaged in rationalization aimed at keeping knowledge of the mistake from others and even from himself (cognitive dissonance is a real phenomenon down here in the Valley of Tears). And the worse the economic crisis gets, the more pressure he feels.

Bogle very much needs to offer a fuller explanation and to respond to questions and all this sort of thing. But he does not today possess the courage to do this. All of those who care about him (and about the survival of our economic system) need to do what we can to push him into doing what needs to be done as soon as possible. On the day Bogle walks to the front of the room and says those three magical words “I” and “Was” and “Wrong” (or even just “I’m” and “Not” and “Sure” — those slightly less magical words would also be enough to get the job done), all sorts of wonderful things begin to happen.

We have dover the past 30 years developed hundreds of insights about how stock investing works that we are not today able to share with others because to do so would embarrass the Buy-and-Holders. The Buy-and-Holders did not mean to cause an economic crisis when they were starting out. They never imagined things turning out this way. We need to open the floodgates of knowledge and launch a national debate on what works in stock investing that will generate the greatest period of economic growth in our history. I have studied this subject in great depth for nine years now and I can tell you that the numbers suggest that, within six months of the day Bogle gives that speech, we will all be looking at the economic crisis in the rear-view mirror.

We need to stop looking backward and start moving forward again. Bogle is a leader in this field and we need his help to get this done. Bogle wants to help, at least part of him does. We need to place our confidence in the better part of the man and implore that better part of him to get up on that stage and say what needs to be said. If enough of his friends get to work on this, it will happen. I have seen the last page of the book and I am pleased to be able to report that this one has a happy ending.

Rob

What Bogle Says About Valuation-Informed Indexing

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I’ve posted a Guest Blog Entry at the Balance Junkie site called What Bogle Says About Valuation-Informed Indexing.

Juicy Excerpt: The purpose of this post is to describe and comment on Vanguard Founder John Bogle’s views on Valuation-Informed Indexing. Bogle is widely recognized as the primary advocate of Buy-and-Hold alive on Planet Earth today, as I am the primary advocate of Valuation-Informed Indexing. The surprising truth is that, despite common misperceptions, the two of us are not all that far apart in our investing views!

Juicy Comment #1: To me, Bogle’s remarks are cryptic and vague. It does him injustice to speculate what he is really thinking. Would he not be interested to explain these remarks more fully if asked?

Juicy Comment #2: Regarding some ‘buy and holders’ with whom I have engaged they don’t necessarily completely practice what they preach. They do in fact take advantage of market downturns to time their rebalancing of their asset allocations and when confronted they get angry and say it’s just common sense!

Juicy Comment #3:  I don’t think I’m smart enough to know when stocks are at fair value and when they’re at double fair value.

Juicy Comment #4: VII is as much John Bogle’s creation as it is Rob Bennett’s creation. All I did to develop VII was to take Buy-and-Hold and drop out the Get RIch Quick stuff (Bogle did not know it was Get Rich Quick stuff at the time he adopted it because the research showing this had not yet been done at the time). VII is going to permit all middle-class investors to retire five to ten years sooner than they can hope to today. It is a huge advance. And Bogle is going to get a huge portion of the credit for it. I am going to see to it.

Juicy Comment #5: As you note, even the Buy-and-Holders see that Buy-and-Hold does not jive with common sense. So, just as you say, they make a million exceptions to the “rules” of the Buy-and-Hold approach. You’ll note that Buy-and-Holders never object to people who don’t follow the rules. It doesn’t bother them. Why? Because those people are not pointing out that there are no studies. So they represent no threat. It’s the people who take Buy-and-Hold seriously and ask to see the studies that are trouble.

“If Bogle Made Clear That He Will Support Those Who Post Their Honest Views Regardless of Any Intimidation Tactics Employed by This Other Individual, That Would Do the Trick”

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Set forth below are some words that I posted to the My Personal Finance Journey site in response to Jacob’s observation that “it’s important to think about next steps for Valuation-Informed Indexing”:

We need to get lots more people discussing VII, Jacob. There’s never going to be 100 percent agreement on any particular points and we should never wish that there would be. We learn from talking things over. So we just need to do all that we can to get as many discussions started as we can.

You did a super job with this post. The fellow who writes the “Money & Such” blog wrote several super posts about it. Frank at “Bad Money Advice” wrote a fine post about it a little ways back. Pop Economics had a good post on it. We need more of this sort of thing throughout the Personal Finance Blogosphere — people writing comments both pro and con so that their readers can hear both sides and think things through for themselves.

Getting the Bogleheads Forum opened up to discussions of it would be huge. I don’t know how much of the history you know but there were hundreds of people participating in the discussions that we had there for nearly two years. Those people are smart and know the issues well. So we could achieve big advances there.

I would like to get more feedback from John Bogle. Bogle said in an interview that he thinks Valuation-Informed Indexing can work. But his words fell a bit short of an endorsement, in my assessment. I would like a clearer and more in-depth discussion of what he sees as both the pros and cons. I have written him three e-mails but have not received a response. I suggested at one time that I make a presentation at one of the annual Bogleheads meetings and that we have Bogle respond to the points I make, either endorsing them or challenging them or looking at things from his own perspective or whatever.

That would be the best way to proceed, in my view. Bogle obviously has huge influence on many posters at Bogleheads. If he were to signal that he favors further discussions, that would encourage lots of people who post there and who have good ideas to speak up. The problem we have now is there there is one individual who posts there who is viewed as a “leader” and who intimidates those who post in support of VII. If Bogle made clear that he will support those who post their honest views regardless of any intimidation tactics employed by this other individual, that would do the trick. Many, many people are willing and happy to help out. But there are limits to how much people are willing to put themselves through to do so.

I would like to see the leaders in the Personal Finance Blogosphere speak out as well. Again, both supportive and critical comments are helpful. The message that needs to be sent is — There is nothing wrong with talking about these ideas, there will be no punishments of those who talk about these ideas or harassment of those who post supportive comments. Once people begin to get that message, things will just naturally move over time to a better and better place.

The other thing that people interested in the VII concept can do is to read my three weekly columns, where I expand on the ideas each week. I address the technical issues most frequently in the “Valuation-Informed Indexing” column at the www.ValueWalk.com site. There’s lots of exciting stuff that comes up in those columns (I don’t think that should be taken as bragging as I obviously don’t claim that I developed the VII concept by myself — there were hundreds of fine people, including many passionate supporters of Buy-and-Hold, who helped out in very important ways).

If there is anyone reading these words who can think of anything else I can do, I hope they will contact me. Getting the word out on this has become my Life Project. So I obviously want to do anything and everything I can do. I am of course extremely grateful for all the help you have offered, Jacob. Your efforts have been heroic. I believe that they will be widely seen in days to come as having helped out many, many people in highly significant ways.

Rob

Valuation-Informed Indexing vs. Passive Investing: Which Is Better?

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Jacob at the My Personal Finance Journey blog has posted a blog entry tiled Valuation-Informed Indexing vs. Passive Investing: Which Is Better?

Juicy Excerpt #1: While Valuation-Informed Index Investing may have outperformed passive investing in most previous historical periods, evidence of it not performing as well in recent years is enough to keep me as a passive investor, at least until VII is refined.

Juicy Excerpt #2: Valuation-Informed Index Investing has great potential because it greatly reduces the risk to investor returns. Even though VII failed to outperform passive investing in my analysis, it also provided much less risk, as evidenced by the sharp decrease in standard deviation of the portfolio value over time. For example, VII Portfolio 1 provides a slightly lower return of 185% over the time period analyzed (compared to the passive investing portfolios). However, the portfolio also has 34%, 55%, and 21% less risk (standard deviation of portfolio value) compared to the 60/40, 75/25, and 50/50 passive portfolios, respectively.

Juicy Comment #1: If there is someone reading these words who has the ability to bring this post to the attention of John Bogle, I think it would be a huge plus if he or she would let him know about it and would ask him if he would be willing to comment. Bogle said in an interview with Index Universe that he believes that Valuation-Informed Indexing can work. It would be a huge step forward if he would provide us with a more detailed statement of his thoughts about the concept.

Juicy Comment #2: Bogle has said that Valuation-Informed Indexing can work. That leads me to believe that I AM a Passive Investor. But I am banned from posting at the Bogleheads Forum. I think it is fair to say that that would cause many to conclude that I am NOT a Passive Investor.

ITNR #54 — John Bogle Talks Out of Both Sides of His Mouth

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I’ve posted Entry #54 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called John Bogle Talks Out of Both Sides of His Mouth.

Juicy Excerpt: Bogle has a cute way of expressing his opposition to market timing. He says: “Not only have I never heard of anyone who engaged in successful market timing. I have never even known anyone who knew anyone who engaged in successful market timing.”

But –

Bogle himself has engaged in successful market timing! He lowered his stock allocation dramatically at the top of the bull market and spared himself some big-time losses by doing so.

Yet he still says that he does not know anyone who knows anyone who has engaged in successful market timing. Does he not know himself? Does he not think it might be a good idea to write a letter introducing himself to himself with the aim of getting to know himself better?

Once Bogle got on speaking terms with himself, sparks would begin to fly. He would no longer feel a need to tell people that he does not know anyone who knows anyone who successfully practiced market timing. He would be freed to tell what he knows but doesn’t today know that he knows. My sense is that the man knows some interesting stuff. If only he knew that he knew it!

Beyond Buy-and-Hold #37 — Do We Get Taken When We Buy Stocks?

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I’ve posted Entry #37 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Do We Get Taken When We Buy Stocks?

Juicy Excerpt: When it comes to cars, people know to be skeptical of salesman claims. No one takes the word of a car salesman as gospel. If only this were so when it comes to the people who sell us stocks!

John Bogle is the slickest salesman alive today. I don’t mean that as a dig. It’s his job to sell stocks and he does his job exceedingly well. And Bogle has done a lot of good for middle-class investors. We need good salesmen in this world of ours! I am a big-time fan.

My point is that it is horrifying to hear people refer to Bogle as a “saint.” He’s a salesman, not a saint. Bogle is not in a position to offer you balanced and objective and research-backed advice on how to invest. Start thinking of a salesman as a saint and you are asking for trouble.

My Second E-Mail to John Bogle: “I Haven’t Been Banned at Any New Boards or Blogs for Six Months!”

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Set forth below is the text of an -mail (with the subject heading “More Defamation/Intimidation/Deception at Bogleheads Forum)  that I sent to Vanguard Founder John Bogle a few moments ago:

John:

This is Rob Bennett, the fellow who has been pushing that crazy, newfangled approach to indexing (Valuation-Informed Indexing) that has caused our mutual friend Mel Lindauer and a few others to go off their rockers in recent years.  I wrote you on July 9, 2009, asking for your help with the problem of abusive posting employed at the Bogleheads Forum to discourage community members there from making an effective case pointing out the dangers of Buy-and-Hold Investing (and to get those who don’t pay heed to the warnings removed!). I believe that the time has come for a follow-up report.

The problem has gotten both a bit better and bit worse in the time since. It has gotten better because the stock crash and the economic crisis have helped many middle-class investors appreciate the dangers of Buy-and-Hold (if you do not today possess a good understanding of why Buy-and-Hold is the purest and most dangerous Get Rich Quick approach ever, I invite you to read the material at the links set forth in the blog entry referred to below or to send me a return e-mail asking any questions you are struggling with re this matter). I haven’t been banned at any new boards or blogs for six months now! We are gradually seeing the changes we need to see to take your many powerful insights to a far better place that we have been able to take them in earlier days.

However, things have also gotten worse as those who have participated in defamation and deception and intimidation and word games in “defense’ of Buy-and-Hold have become even more defensive as it has begun to hit them how much financial damage they have done with their advocacy of this now-discredited but once very promising idea (fated to achieve its promise as we all move together to the Valuation-Informed Indexing Era, to be sure).

The optimistic and pessimistic signals recently met in one strange Bogleheads thread reporting on exciting research by Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan, showing that Valuation-Informed Indexing beat Buy-and-Hold in 102 of 110 30-year periods. That of course is breakthrough stuff that we should all be working together to spread to every middle-class investor alive. The crazy, insane, sad, pathetic part of the thread (about half of the posts put forward rationalizations for not doing all we can to get this wonderful news out to middle-class investors as quickly as possible), is summed up in the words of a post put forward by Site Administrator Alex Frakt.

Here are Fract’s words: “We’ve had to remove a couple of comments and posts from this thread regarding Rob Bennett. I have been in contact with the OP offline and he is now fully aware of hocus’ modus operandi, so there is no further need for these posts. Let’s continue to keep this forum a hocus-free zone. P.S. For anyone confused by this message, I suggest googling “hocomania.'”

Huh?

And — Yucko!

We need your help, man! Really!

We need it now. By the close of business today if at all possible!

I wish you luck in all your future endeavors and look forward to working with you to bring your many wonderful and powerful insights from earlier days to fruition as we move from the discredited Buy-and-Hold strategy to the investing model that we all know you would have put forward in the first place if only Shiller’s research showing that valuations affect long-term returns had been available to you back in the 1970s.

Take a sad song and make it better, John. Please?

Here’s a link to my blog entry reporting on Frakt’s words (there are 12 links to background materials contained therein):

http://arichlife.passionsaving.com/2011/01/25/site-administrator-alex-frakt-doubles-down-on-defamationintimidationdeception-strategy-at-bogleheads-forum/

Rob