A Rich Life

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

“People Respect and Admire Jack Bogle. When He Sees a Mel Lindauer Behaving in the Manner in Which Mel Linduaer Behaves and Does Nothing About It, That Scares People.”

by

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

If you think that the Bogleheads Forum does not have great power to help or hurt people, we have a very, very different take re the matter.

When I was at Bogleheads, there were hundreds of very smart and good people who expressed a desire that honest posting be permitted. Mel Lindauer hated that idea. He was willing to destroy the board rather than permit honest posting there. But how did he pull that off? He’s one guy and there are hundreds on the other side. How did he do it?

He did it with Jack Bogle’s help.

Jack never personally advanced death threats. But he appeared in threads with Mel. He got Mel that column with Forbes. He showed up at events with Mel. I saw a photo once at the Goon Central board in which Jack and Mel are standing close enough together that you can see them both in the same photo!

People respect and admire Jack Bogle. When he sees a Mel Linduaer behaving in the manner in which Mel Lindauer behaves and does nothing about it, that scares people. Bogle has power in this world. And when he fails to speak up about a Mel Linduaer, he puts that power to a very great negative use.

The other side of the story is that that board has the power to bring the economic crisis to an end. That’s a big deal. There are many influential people who participate or lurk at Bogleheads. If we had been talking there about the true cause of the economic crisis going back to the first day, that front-page New York Times story on Buy-and-Hold that we all deep in our hearts long to see would have appeared a long, long time ago.

The internet discussion board is a powerful communications medium of the future, What. You couldn’t be more wrong than you are in the suggestion you make here.

The question is whether the power of that board community is going to be put to use serving good purposes or bad ones. I entertain both hopes and fears re that one. I know how much good that board can do and I hope to see the day it gets about the business of doing it. And I know how much harm that board is doing in its current incarnation and I fear for how those doing the harm are going to feel about themselves when they finally come to realize how many human lives have been destroyed.

There is a power that comes with being the biggest investing board on Planet Internet, What. And with power must come a sense of responsibility.

I am sure.

Rob

Academic Researcher Silenced by Threats to Get Him Fired From His Job After Showing Dangers of Buy-and-Hold Investing Strategies

by

I’ve posted an article to the “The Buy-and-Hold Crisis” section of the site titled Academic Researcher Silenced by Threats to Get Him Fired From His Job After Showing Dangers of Buy-and-Hold Investing Strategies.

Juicy Excerpt: The question this article addresses itself to is — How do they pull it off?

It’s not hard to understand why financial planners would want to encourage their clients to invest heavily in stocks — most of the money made in this field is made through the selling of stocks and all industries want their customers to believe that the product they are selling is a good buy at any possible price. But how has Wall Street managed to convince millions of middle-class people to throw away large portions of their retirement money through a misguided belief in this obvious fiction?

Buy-and-Hold advocates argue that the academic research on stock investing supports their claims that market timing doesn’t work or isn’t required for long-term success. Academic researchers are independent actors. How have the researchers been persuaded to keep quiet about what the entire historical record so clearly shows to be the case, that long-term market timing (changing your stock allocation in response to big swings in valuations with the understanding that you may not see benefits for doing so for as long as 10 years) always provides investors with much higher long-term returns at greatly reduced risk?

It’s done through the application of brutal intimidation tactics aimed at those who stray from support for the company line. Other researchers with thoughts of telling the truth about stock investing see what has happened to their peers, learn the lesson that the industry needs them to learn for their Buy-and-Hold marketing slogans to remain effective, and self-censor their research.

Academic Researcher Wade Pfau’s Responses to My Reporting on Our 16 Months of E-Mail Correspondence

by

The purpose of this blog entry is to set forward in one place links to the responses that Academic Researcher Wade Pfau has made to my reporting on our 16 months of e-mail correspondence.

1) Wade’s first response came when I told him of my plans to report on our e-mail correspondence. He said of this e-mail at a later date: ““About that first email I sent you in our exchange, please under no circumstances try to summarize or excerpt from it. If you must use it, please include the entire message with nothing left out. I think that is only fair, because you will then have free reign for your rebuttal, and I won’t be around for further rebuttals to that.”

Juicy Excerpt: “I don’t have any hard feelings toward you, but it is hard to have public communications with you after all the attacks you made toward me at your blog following the Bill Bengen incident. You strongly misinterpreted what I wrote at your blog and attacked me so thoroughly, and that makes it hard to see any paths forward in communicating with you publicly.”

2) Wade’s second response came in the form of a post to his blog. In this blog, he praised John Greaney, the leader of the Goons, as the hero of our ten years of discussions on safe withdrawal rates.

Juicy Excerpt:  “Rob desperately wants someone besides him to say that the Trinity study needs to be “corrected,” but I’ve explained that this isn’t how research works. Rather, new studies with new methodologies come to replace old studies. This is a case, however, in which old studies were already available to suggest that we shouldn’t project the findings of the Trinity study forward to future retirees.”

3) Wade’s third response came in a comment to one of my blog posts reporting on our e-mail correspondence. I refrained from responding at the time on the thinking that it was more fair to let Wade have the floor to himself for at least that one blog post.

Juicy Excerpt: “You shouldn’t have posted my private emails. That is so unethical. And it really doesn’t help to build you up. Posting my outdated private emails will only give second thoughts to anyone in the future who might have been willing to give you the benefit of the doubt.”

4) Wade’s fourth response came in a comment to another of the blog posts reporting on our e-mail correspondence. In this case, I set forth my responses in comments that followed his comment.

Juicy Excerpt: “If I *did* lack personal integrity, I could have made this all stop just by saying the meaningless sentence you want so desperately to hear: “I think the errors in the traditional safe withdrawal rate studies must be corrected by using Rob’s analytically valid method.” But I don’t believe that.”

5) Arty, a long-time contributor of comments to my blog (and a mighty fine one!), offered a comment that I think can fairly be said to express Wade’s views. I suggest that those looking to understand Wade’s take re all this consider giving Arty’s comment a look. I responded to Arty’s comment at the blog.

Juicy Excerpt: “Speaking only from a human point of view, if Wade requested you not share personal correspondence, I hope you can find a way to honor his request for those things he wishes to remain between the two of you only…. we can discuss his work—as it should be on its own merits— without the private communications.”

I will be advancing my responses to a number of points raised by Wade (and Arty) in blog entries that I will post in coming days.

Addendum:  Wade posted a sixth presentation of his take on things in a comment made to a blog entry in which I reported on an article on my work that appeared at the The Big Picture blog. My take on the points raised by Wade’s comment follow as additional comments to that blog post.

Juicy Excerpt: Congrats Rob, It’s your finest hour. I hope you can learn a lesson from this. The blogger completely bypassed ‘the Wade Pfau story’ and wrote solely about the underlying investment ideas. In this regard, I’m glad to see his post. Your 1,000 email campaign probably would have been a lot more effective had you stuck to the issues that the blogger discussed, rather than turning it into a personal vendetta against me. No one likes to see a negative campaign.

Purcellville Police Warned of Possible SWAT-ing Attacks by Goon “Defenders” of Mel Lindauer and John Greaney

by

I have notified the Purcellville police that I may be the target of SWAT-ing attacks by the internet goons who have advanced posts at various investing discussion boards and blogs in “defense” of Mel Lindauer and John Greaney, the two individuals who have led the 10-year-long Campaign of Terror against the Retire Early and Indexing discussion board communities and the Personal Finance Blogosphere.

Wikipedia defines SWAT-ing (or Swatting) as “an attempt to trick an emergency service (such as a 9-1-1 dispatcher) into dispatching an emergency response team. The name is derived from SWAT (Special Weapons and Tactics), one type of such team. Such action places law enforcement and citizens at risk and are criminal actions. In addition, it reduces law enforcement coverage and costs taxpayer money.” The Wikipedia entry explains that: “CNN interviewed Erick Erickson to discuss an incident in which he had been the victim of swatting. The caller to 911 claimed: ‘I just shot my wife, so…. I don’t think I could come down there…. She’s dead, now…. I’m looking at her…. I’m going to shoot someone else, soon.’ —911 caller. That incident prompted Sandy Adams to push for a Justice Department investigation.”

I am the person who discovered the errors in the Old School safe-withdrawal-rate studies (the studies do not contain an adjustment for the valuation level that applies on the day the retirement begins). I shared my discovery with my fellow community members at a Motley Fool discussion board on the morning of May 13, 2002. John Greaney, the author of one of the discredited studies, has for the past 10 years led a brutal Campaign of Terror against all board and blog communities that have shown an interest in discussing the errors in the Old School SWR studies. The effort was led at Indexing communities by Mel Lindauer, co-author of The Bogleheads Guide to Investing, who made a positive reference to the Greaney study in his book and who has posted in “defense” of Greaney and the Old School studies at the Bogleheads Forum discussion board.

When Academic Researcher Wade Pfau contacted the authors of the Trinity study (another discredited Old School SWR study) seeking a correction, the LIndauerheads and Greaney Goons threatened to send defamatory e-mails to his employer in an effort to get him fired. I have in recent months been reporting on my 16 months of e-mail correspondence with Wade, in which he made many references to the “hostile environment” he experienced when posting on the internet about his research findings showing that the Old School retirement studies get the numbers wildly wrong and about his fears that the Lindauerheads and Greaney Goons would be successful in their efforts to destroy his career if he did not agree to play ball with them.

Wade has announced that he will no longer be doing research on Valuation-Informed Indexing, the investing strategy that I developed as a result of the loss of confidence I experienced in Buy-and-Hold after seeing many Buy-and-Holders fail to speak up in strong terms in opposition to the Campaign of Terror (Wade’s research shows that Valuation-Informed Indexing has provided far higher returns than Buy-and-Hold at greatly diminished risk for the entire 140 years for which we have stock return data). He also announced that, while he still believes that the Old School studies get the retirement numbers wildly wrong, there is no need for them to be corrected. He has praised Greaney as the hero of the  10 years of discussions and has characterized me as “unethical” for insisting that the discredited retirement studies be corrected before they cause more failed retirements.

I have contacted the Purcellville Police re this matter previously — much of the history of my efforts to resolve the matter by contacting the appropriate authorities is described here. I have seen an escalation in the threats since I began reporting on Wade’s decision to capitulate to the demands of the Goons. On July 6, 2012, I received an e-mail containing the following text: “Coming.tanks 4 address and phone number.will help me find u.” One of the Goons recently started a thread at the site owned by Greaney setting forth this image in the thread-starter:

 

Greaney Site Gun Image

John Greaney’s argument for why there is no need to correct the errors in the Old School safe-withdrawal-rate studies

 

I have made public notice at earlier times that I expect to bring civil lawsuits for the recovery of damages to my internet writing business against the owners of web sites that permit Lindauer and/or Greaney “defenders” to post defamatory comments about me or about those who have posted in support of correction of the Old School studies or Valuation-Informed Indexing or in opposition to the Campaign of Terror against our board communities or who in some other way lend support to the efforts of Lindauer and Greaney to continue the ten-year cover-up of my discovery of the errors in the studies. I also expect to help the millions of middle-class investors who have suffered financial losses as a result of the 10-year cover-up to recover the financial damages they have suffered. And I of course will cooperate in any way I can at congressional hearings and in criminal proceedings against those who have posted in “defense” of Lindauer and Greaney.

I intend for this blog entry to put all concerned parties on notice that I would expect SWAT-ing actions to be considered in the criminal and civil and congressional proceedings that I expect will follow the next crash in the price of stocks.

Ed Rager, Mel Lindauer and Taylor Larimore to Rob Bennett: “You’ve Constantly Misquoted, Distorted, and Disrespected Jack Bogle and Bill Bernstein. Your latest Post “Jack Bogle’s Big Mistake” Was, in Our Opinion, the Final Straw. Jack and Bill Both Join Us at Our Private Events Because They Enjoy Meeting with Friendly, Like-Minded Diehards in a Relaxed and Secure Atmosphere….You Will Not Be Allowed to Attend.”

by

While I was looking through my old e-mails to recover the ones that I sent to the Morningstar site administrators and reported on in the last few blog entries, I came across the e-mails that I sent to sign up to attend the Vanguard Diehards Conference with John Bogle in 2007. I had intended to ask Bogle questions about the cover-up of the errors in the Old School safe-withdrawal-rate studies, which I had reported on at a Motley Fool discussion board on May 13, 2002, and which have not been publicly acknowledged by the “experts” in the investing advice field until recent months. I thought that these e-mails too were worth reporting on. I did not receive a response to the question I posed in the last e-mail.

Set forth below are the texts of three e-mails: (1) the e-mail that I sent to Ed Rager on February 17, 2007; (2) the response that I received from Ed on February 18, 2007; and (3) the reply that I sent on Feburary 19, 2007.

Ed:

This is Rob Bennett (“hocus” on the boards). I’d like to make my reservation to attend Diehards VI.

I live in the area. So I do not need a hotel reservation.

My personal information is:

[….]

Please let me know what I need to do to transfer the registration fee of
$189.

Thanks for all the work you did putting this together.

Rob

Hi Rob:
Our Diehards get-togethers are private social meetings of friends and like-minded souls who love, admire, and respect Jack Bogle and his teachings.  You’ve constantly misquoted, distorted, and disrespected Jack Bogle and Bill Bernstein.  Your latest post “Jack Bogle’s Big Mistake” was, in our opinion, the final straw.  Jack and Bill both join us at our private events because they enjoy meeting with friendly, like-minded Diehards in a relaxed and secure atmosphere.  We want them to continue to enjoy and attend our private social events.  Therefore, we regret to inform you that you will not be allowed to attend.
Ed, Taylor and Mel
<br>
Ed, Taylor and Mel:Boo, baby!These statements are of course absurd.Have you notified Jack Bogle of what you have done?

If you have notified him, would you please let me know his reaction?

Rob

Morningstar Site Administrator to Rob Bennett: “If the Post Where You Were Threatened Did Not Occur on the Morningstar Boards, Then Why Bring It Back to Life on the Morningstar Boards?….Consider This a Formal Warning.”

by

Yesterday’s blog entry reported on an e-mail that I sent to Morningstar.com site administrators on April 18, 2006, reporting on death threats advanced by John Greaney at an earlier time that were being used by Mel Lindauer, co-author of the book “The Bogleheads Guide to Investing” at that time to intimidate Vanguard Diehards community members into not posting honestly on the errors in the Old School safe-withdrawal-rate studies. Set forth below is the text of the response I received from Morningstar on April 18, 2006, followed by my reply to that response. I did not receive a response from Morningstar to the question I posed in that reply.

Hello Rob,

Thank you for writing.  Unfortunately we are not concerned with the goings-on in other forums outside of Morningstar and have no control over other forums.  If the post where you were threatened did not occur on the Morningstar boards, then why bring it back to life on the Morningstar boards?  As far as we can tell, this constitutes as a posting of misleading information.  Consider this a formal warning.

If you have any additional questions or comments, please don’t hesitate to reply to this email and I will be happy to further assist you.

Best Regards,
Matthew B
Morningstar Support

Matthew:

I certainly agree that the Greaney matter should not be brought to the Morningstar boards. The reality is that it has been brought up there by a number of posters. My post was an attempt to explain to my fellow community members the background as to why this was happening. I did this only after the matter had been injected into discussions held at Morningstar on numerous occasions.

I certainly am okay with the idea of not making further reference to the Greaney matter at the Morningstar boards.

Would it be helpful if I were to notify you on future occasions on which the Greaney matter is brought into the discussions at Morningstar by other posters?

Rob

Rob Bennett to the Morningstar.com Site Administrator: “A Poster Named ‘Galeno’ [This Was Greaney’s #1 Supporter on the Board] Put Forward Four Consecutive Posts Rejecting Out of Hand the Idea of Substantive Discussion and Putting Forward Threats of Physical Violence Against Me. One Was a Threat to Come to My House with a Baseball Bat to Kill My Wife and Children”

by

Yesterday’s blog entry reported on an e-mail that I sent to the Morningstar.com site administrator on April 18, 2006, relating to abusive posting by Mel Linduaer (co-author of the book “The Bogleheads Guide to Investing”). I sent a follow-up e-mail later that day. I will report tomorrow on the response that I received from Morningstar.

Mstar Casey:

This is my second response to your e-mail. The earlier response supplied the background facts. This post provides links.

Here is a link to a post put forward by Greaney (he posts as “Intercst.”):

http://boards.fool.com/Message.asp?mid=17762586&sort=postdate

Mark33 asked that the personal attacks stop and that a substantive discussion be permitted. A poster named “Galeno” (this was Greaney’s #1 supporter on the board) put forward four consecutive posts rejecting out of hand the idea of substantive discussion and putting forward threats of physical violence against me. One of these was a threat to come to my house with a baseball bat to kill my wife and children.

The posts making the threats were deleted, but there is a quote to one of the threats in the post linked above. The section quoted reads: ” No way! I, for one, am against any and all “substantive” discussions with or about brickhead (aka hocus). I want Jihad! I say let loose the dogs of personal attack. The nastier the better as far as I’m concerned.” Greaney put forward the post linked above, endorsing the threats.

Here is a link to a post in which Greaney reports that he has received an e-mail from Galeno saying that he was suspended from the board for putting up the posts that made the threats of violence. I did not report the threats. Some other community member obviously did so.

http://boards.fool.com/Message.asp?mid=17765010&sort=postdate

Greaney speaks in opposition to the suspension, implicitly endorsing the threats. This endorsement did far more harm to the board than did the actual threats, as Greaney was founder of the board and respected by a number of community members. A large number of our best posters left in the following months.

This is a link to a post by Prometheuss, another leading Greaney supporter. The post comments on a death threat put forward by Galeno and comments negatively on the fact that the death threat post was removed.

http://boards.fool.com/Message.asp?mid=18207722&sort=postdate

Prometheuss: “My comment on galeno’s post was pulled for ‘incivility’. First, I want to apologize to galeno if he took offense at my ‘rude or discourteous’ post. Saying, “You doctors should stick to your drugs and leave bullets to soldiers like me” was rude and demonstrated a lack of courtesy to galeno on my part. Anyway, I will try to cover the important points I was trying to make in a non-offensive way here. Most folks think they know a lot about guns from watching movies or TV, but things are a lot different in the real world….”

Please let me know if you have further question re this matter or need further examples of the nature of the problem that I was making reference to in the post that I put to the Morningstar board.

Rob

Rob Bennett to Academic Researcher Wade Pfau: “I Strongly Believe That There Are Things You Must Do and Things You Must Not Do to Protect Your Reputation As An Ethical Person. I Believe Today That There Is Serious Reason to Question Whether You Have Managed to Stay on the Right Side of the Line…. Are You Insane, Man? Please Think!”

by

Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on January 1, 2012. My next e-mail to Wade was dated April 5, 2012, and was titled “Concerns Re You Going to the Dark Side.” The text is set forth below.

Wade:

I hope things are going well with you.

This e-mail will not be a pleasant one to write (or to read). I don’t think I have any choice but to write it, given recent developments.

Before I start, I want to state the obvious preface. I have great feelings of respect and affection for you personally and I admire your research work probably more than anyone else alive on Planet Earth today. In ordinary circumstances, that would be the basis for a wonderful relationship. As you know, there have been things that stood in the way of that since our first communications. Those obstacles have always saddened me. My strong sense is that the problem side of the relationship has grown much worse since your postings at my blog re whether Bill Bengen should correct the errors in his SWR study. The purpose of this e-mail is to (1) attempt to confirm whether that is indeed the case or not; and (2) get some things off my chest that I need to get off my chest to fell that I have always dealt with you in good faith.

You are of course aware that there has been an organized effort on the internet to destroy my reputation which has been led by Mel Lindauer and John Greaney  and which has made it impossible for me to earn a living for 10 years now. I believe you know that I plan to bring lawsuits against the sites that have permitted the Lindauerheads and the Greaney Goons to engage in defamation and death threats and other tactics to block numerous board and blog communities from learning what they need to learn what the last 30 years of academic research says about safe withdrawal rates and other important investment-relarted topics.

I believe that we all have a responsibility as part of the ethical demands of our respective professions to speak up when we see this sort of behavior. I have of course spoken up. You have spoken up on a few occasions in small ways but generally have kept quiet re this aspect of things. It’s not easy to say where precisely the line should be drawn re speaking up or not speaking up. My problems are of course not your problems and I of course do not expect you to feel as  great a concern re this aspect of the question as I feel since I am directly involved. That said, I strongly believe that there are things you must do and things you must not do to protect your reputation as an ethical person. I believe today that there is serious reason to question whether you have managed to remain on the right side of the line.

I was questioned the other day by one of the Goons as to whether we were still in e-mail communication. My answer was that I presumed we were. I don’t recall us having a back-and-forth discussion since the day you posted on the Bengen blog post. My recollection is that I sent you a copy of an e-mail that I sent to a visitor at my site because he referenced you in the e-mail and I wanted you to see both his words and my words. I did not receive a response to you re that e-mail but I did not see that as being a big deal.

Today, I was communicating with another financial blogger and wanted to send him a link to the blog post in which you explored Valuation-Informed Indexing and found that it beat Buy-and-Hold in 102 of 110 of the rolling 30-year time-periods in the historical record. As you obviously know, this post of yours was a big help to me in trying to overcome the Campaign of Terror against me and the many board communities in which numerous community members have expressed a desire that honest posting on SWRs and other valuation-related topics be permitted. The goal of the Internet Sewer Rats has been to persuade my potential readers and customers that I have not done important work and your mention of my name in a post that shows that I was right all along made it impossible for them to continue to maintain that position.

You have removed my name from the post. Why?

You of course have a right to re-write posts. In this case, however, the action is an exceedingly odd one. You have been attacked by Lindauer yourself. You have acknowledged in posts that Drip Guy has sent you e-mails and you have changed positions you have taken in discussions at the Bogleheads board as a response to his threats. When you contacted the Trinity authors about correcting the errors in their SWR study, the Greaney Goons put up posts threatening to get
you fired from your job if you followed through and you then retreated from your position after letting me know that you were indeed concerned that you might lose your job as a result of their actions. We of course both know that the Sewer Rats have employed similar tactics in numerous other cases.

I believe you are making a huge mistake, Wade.

Please don’t hear that as a threat. I hope you will hear it as a friend speaking to a friend. I said similar words to Greaney 10 years ago and he is where he is today because he ignored those words (Greaney was my personal friend in earlier times). I said similar words to Lindauer. It breaks my heart to see another one of my friends take this horrible path. Are you insane, man? Please think!

I am a journalist, Wade. My job is to tell this story in as honest and as complete and balanced way possible. I take the responsibilities of my profession seriously and I will honor them. I WILL let personal friendships influence me (I have done
this with Greaney on many occasions). I think it would be inhuman of me not to do so. But I WILL also honor my responsibilities to my readers.

There are millions of middle-class people who have been done great harm by this economic crisis. They need to know the story here. The hardest question for them to understand is — Given that the academic research has shown for 30 years that Buy-and-Hold can never work for any long-term investor, why are there still people today advocating it? I need to tell BOTH sides of that story. That’s my job.

My strong hunch is that you would prefer to stick to the research and keep away from all this ugly junk. Guess what? Every single one of us feels the same way. The full reality here is that the reason your research has not received the attention it merits (I understand that you have received a great deal of attention and that that attention is fully deserved) is because people cannot come to terms with the ugly, emotional side of all this. If our free market economy is to survive for much longer into the future, we all need to work up the courage to deal with that side of things. We need to do so with love, to be sure. But we need to do so with honestly as well. There is no other way.

If I hear a response from you that indicates that you want to deal with the issues at stake here in a responsible way, I will do whatever I can to put in place a process that will work to help every single person involved come out of this looking as good as it is today possible for them to look. That’s the love part of the formula.

The honesty part of the formula is that, if I do not hear from you, I need to report on what you have done in this case and in your other interactions with the Goons on the Bogleheads Forum and elsewhere. I hate being put in these circumstances as I know you hate being put in these circumstances. The bottom line here is that these are the circumstances into which we were born and we both need to work up the courage to make the best of them.

Please always know that, if you see something that I have written and you feel that I have not told things in a precisely fair way, I will be thrilled to give you space in the article or blog post to tell your version of events in your own words. My preference is that it be done in that way.

Please also know that I will of course always respect the work you have done. I very much still believe that you are someday going to win that Nobel Prize and that we are going to see your name on the front page of the New York Times. It will be a great day for all of us when that happens.

Please also know that I will do everything I can to slant things as much as I can in your favor without failing to honor my obligation to my readers to provide them with the detail they need to hear to  make sense out of the amazing circumstances that apply in InvestoWorld today.

Please also know that I will always think of you as a friend and will always wish the best for you and will always be\ honored to be associated with you in any way (even if this crazy mixed-up world of ours puts me in circumstances in which I need to name you in lawsuits at other times!).

I will close by letting you know of three things that I have in mind at the moment (the purpose of this e-mail is to assure myself that I have done every last thing that I can do to avoid going ahead with these steps):

1) I am going to start a thread at the Goon Central board letting them know that I have sent you this e-mail (without posting the text).  Drip Guy asked me about you directly yesterday, which suggests to me that he feels you have been compromised. I argued yesterday that this was not the case. I don’t want the Goons thinking that I play games re this sort of thing and I have been careful always to respond honestly to their questions. So I think I need to let them know that my sense of where things stand has changed as a result of what I learned today;

2) I expect to post the text of this e-mail at my blog within another week or two. This is obviously an important development in the saga. If you have indeed gone to the Dark Side, that is a major win for the Goons, who have been feeling greatly weakened in recent months aside from this development; and

3) I am in the process of writing a long article that will detail 101 incidents of this nature (you are not the only one who is afraid of what the Goons will do to your reputation if you state your honest beliefs about investing in clear terms!). You are certainly not the focus of the piece. But my expectation is that you will be mentioned in five or so of the incidents. I just want you to know that that is in the works as I feel that each time we go a step down the dark path, it makes it harder to move to the better path for all concerned. How I wish that others could see this point as clearly as I do!

The Goons are not going to win, Wade. They CANNOT win. If we don’t help people learn what they need to learn about stock investing, the numbers show that the whole thing is going to go down (please ask if you have questions about this
aspect of things). There was a big change in people’s attitudes after the 2008 price crash. I’ve been doing this for 10 years and I can tell you that nothing had as much impact as that. The next crash is going to hurt worse (because it follows on
so many down years) and is going to cause a much bigger change in public opinion. You want to be positioned on the right side of things when that happens. We are going to need to act quickly then and we need you working with us!

If you have particular concerns or questions, please let me know of them and we can do out best to resolve them when they can be resolved with relative ease.

I cannot post dishonestly on safe withdrawal rates. It is insane that I was ever asked to do this and it is insane that there is even one responsible person who ever thought that it might be possible that I would go along with such a demand. Just
about anything else is negotiable because, once we achieve the right to post honestly on that topic, a lot of the ugly feelings of shame will dissipate. I cannot give an inch on that one. For reasons that should be obvious to all reasonable people.

Sorry for the long e-mail. I hope it leads to good things!

I wish you the best in all your future endeavors, my good (non-Goon, please?) friend!

Rob

Academic Researcher Wade Pfau: “Mel [Lindauer] Continues With His Criticism, Which Does Have Some Merit, But Which Means That We Can’t Really Use Historical Data to Study Any Issue At All”

by

Yesterday’s blog entry reported on an e-mail sent to me by Academic Researcher Wade Pfau on May 31, 2011. My response, sent the same day, is set forth below.

Wade:

Thanks much for sharing your thoughts.

There was some good stuff in the Bogleheads thread. I of course think  that there would have been a lot more good stuff in it if honest posting were permitted there (I don’t mean just for me, I mean for everyone).

I especially liked the chart that Fred Flintstone provided with the various stock allocation percentages that would apply in different circumstances. Except it appeared to me that all the TIPS yields listed were the same! Did I just misread that? I have a feeling that I am not reading the chart right. I love the concept.

I wish you the best of luck in your exam!

Rob

Wade responded the same day. He said that I was reading Fred’s chart properly but that it was not complete, only a slice of a chart to demonstrate the idea behind it. Regarding my comment on how the Ban on Honest Posting limited the discussions held at the Bogleheads Forum, he said: “Mel [Lindauer] continues with his criticism, which does have some merit, but which means that we can’t really use historical data to study any issue at all.”

My response, sent later the same day, appears below:.

Wade:

Okay. I love that chart idea. I am going to try to write a column on that. I like it that he is showing a practical application.

There’s of course nothing wrong with Mel’s point. It is the dismissive tone that is the problem. In my mind this idea of being dismissive of new ideas is the OPPOSITE of what Buy-and-Hold was all about once upon a time. It started out being about data and research and science and learning. Now it’s about BLOCKING efforts to learn and letting appeals to emotion overrun the science. Too sad!

Rob

Academic Researcher Wade Pfau in Response to Mel Lindauer’s Claim That His Research Engages in Data-Mining: “I Take the Issue of Data-Mining Very Seriously, and, With All Due Respect, Any Data-Mining That I Am Doing Is In Favor of Buy-and-Hold, Not In Favor of Market Timing”

by

Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on February 25, 2011. Set forth below is the text of another e-mail that I sent to Wade on the same day.

Wade:

Please save this for after you catch up on your sleep!

You’re right about the regret bias.

But it won’t be a problem once we are able to get the word out re the need for long-term timing. Say that Money magazine and all the experts and all the web sites all begin pushing that message. There will never again be another bull market. So there will never again be a need to lower one’s stock allocation too much. So there will never again be regret bias.

All of this is circular. People cannot learn about VII because of the Ban on Honest Posting. The Ban is needed to protect Buy-and-Hold. If we give up on the effort to protect Buy-and-Hold, we learn things that it was not possible to
learn in the days before indexing. Once we learn these things, we are never going to forget them. There are going to be books and magazines and calculators and web sites to constantly remind us.

Overvaluation is not a natural phenomenon. It is the product of our ignorance of how stock investing works. We are becoming less ignorant because of decades of academic research (including the research done by the Buy-and-Holders, to be sure — the finding that short-term timing does not work was a HUGE advance).

When the car was invented, one of the complaints was that there were not enough roads to ride it on. Once we all had cars, we solved that problem! When the internet was invented, people said “well, there’s not much there to look at really.” Once we all had computers, we solved that problem.

Once we all know how to invest effectively, no one is going to want to go back to experiencing insane bull markets followed by insane bear markets. For what purpose would anyone want to do that? Those days are over. It’s just a question of getting the word out at this point.

Future discussions will not be over whether to engage in market timing or not but over how best to engage in market timing. There are lots of fruitful discussions that can be held re that question. That’s a very different sort of discussion from the one we have been having for nine years. When we are all directing our energies in a constructive direction, the pace of progress is going to speed up considerably.

The question of whether people need to engage in market timing or not (whether people need to take price into consideration when buying stocks or not) is a time waster. The future of investing analysis will be aimed at answering a far more intelligent question — HOW should people engage in market timing?

As we move to the next stage, the investor regret matter becomes less of a factor. It’s helpful to keep in mind that we have just lived through the most out-of-control bull in U.S. history. Why was this one so bad? Investors have always been drawn to Get Rich Quick thinking (the idea that this might be the first time in history when the price paid for stocks turns out not to matter). But this time those drawn to Get Rich Quick could cite ACADEMIC STUDIES purporting to back up their Get Rich Quick inclinations. That’s why I say that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind (not intentionally so — but still).

Once we bury Buy-and-Hold 30 feet in the ground where it can do no further harm to humans and other living things, it is all downhill sledding. The investor regret matter was indeed a problem for those who attempted to invest rationally during the Buy-and-Hold Era. But it never needs to be an issue again once the dangers of Buy-and-Hold become widespread public knowledge.

Rob

Wade responded later the same day. He said: “I think you will find my new follow-up post even better than the first one”:

http://www.bogleheads.org/forum/viewtopic.php?p=974752#974752

In the material that appears at the link, Mel Lindauer, the co-author of the book The Bogleheads Guide to Investing, attacked Wade’s research for various perceived deficiencies. Wade responded: “Mel, thank you for the comment. If you think I am trying to be sneaky, I think you are missing something important.” When Mel escalated his attacks by observing “sure looks like data-mining to me,”  Wade stated: “I take the issue of data mining very seriously, and with all due respect, any data mining that I am doing is in favor of buy-and-hold, not in favor of market timing. ”

Mel in a subsequent comment said: ” I’m just trying to get to the bottom of all the issues, before you attempt to publish what may be found to be inferior or incomplete work by your peer reviewers. You appear to honestly want to pick our brains, so I’m giving you the feedback you asked for. These are issues that will be raised later, so you need to face them now. However, it appears you’re getting just a little bit testy because I’m raising issues that you may not have considered and which could certainly change the results. Better to get the issues raised here and resolved instead of having your paper rejected because of these very basic issues which you haven’t addressed.

Wade responded: “I’ll try not to get testy. When we stop comparing apples and oranges, and instead compare two scenarios which offer broadly similar risks to investors: (1) the worst performing market timing scenario produced $94,866 ; (2) a 50/50 asset allocation produced $13,426; (3) the 50/50 asset allocation is also going to have to pay some capital gains taxes when it rebalances annually, but the market timer will surely have to pay more taxes over time. But do you honestly believe that the extra taxes paid by the market timer will wipe out the entire surplus gains it had provided at a broadly similar level of risk? ”

Mel responded by pretending that he believed that Wade had changed the scenarios he was describing. He said: “The figures in your original chart were 100%/0 and now you’re talking about the returns for a 50/50 portfolio?”
<br>
Wade said: Please refer to my post above that includes a table and a figure. I talk about both cases there. I’m not switching anything. Would you agree that it is not appropriate to compare the returns of different strategies that result from taking very different levels of risk, and that we should compare risk-adjusted returns? In that case, it is 50/50.  Am I the only one who thinks that it isn’t quite right to be comparing a strategy that is 100% stocks against a strategy that is on average only 50% stocks? Fisher and Statman do this, but one of the points I am trying to make is that this isn’t a fair comparison. Am I wrong?”
<br>
Mel said: It’s a very personal thing. Each investor determines the amount of risk they’re willing to take, and many are willing to take on more risk than others for the expected higher returns. Some investors choose 100% equity, some might be 80/20, some 60/40 etc. So you can’t say that all investors should or do wish to assume the same level of risk.
<br>
Wade stated: I’m definitely not saying that all investors should take on the same risk. Of course not.  What I am saying, or asking, is that if you wish to compare two different investment strategies to see which can be expected to provide the highest returns, shouldn’t you make some kind of adjustment for risk? If you ignore risk, then whatever provides the highest expected return over time will tend to win. Is it okay to ignore risk for the comparisons? Or should you only try to compare strategies which offer the same risks? Then, from there, you can move on and make further adjustments to the strategy to calibrate the level of risk you are willing to incur as an individual investor.  To give some context. I am currently 70/30. But I am seriously considering changing to 50% stocks/70% stocks/90% stocks depending on the level of PE10. I won’t do this until at least the summer, because I need to start studying for the CFA Level 3 exam soon, and I can see that it will teach lots of important tools for making these comparisons, and give me more time to think about this rather serious and important decision. I still have 35 or 40 years before I would seriously consider retiring.”
<br>
Mel said: “I’m simply raising issues that others are certain to raise. And ignoring the cost of taxes in the market-timing strategy is a major flaw IMO. ” Do you have clearly-defined and executable buy and sell points where all of the information needed to follow the market-timing system is publicly available to all investors?  Finally, have you considered what the market impact would be if a very large number of investors followed the system and executed their market timing buys and sells on the same day? (I’d guess that there would only be one right buy and sell date for the data to be valid).  PS – Congrats on getting past the first two CFA tests. You’re almost there!”
<br>
Wade responded: “Thank you for these comments. I think we can wrap up our discussion, thank you very much.  Taxes do remain an area I haven’t explored, but would like to. But it will require a lot of work so I cannot do it until after the exam.  About the decision rules with publicly available information, that should not be a problem. After the market closes at the end of the year, people should be able to get an update on PE10 immediately and change their asset allocation for the following year when necessary.  About the potential market impacts of many people adopting this strategy, I don’t have any clear answer. Some may think it will eliminate booms and busts from the market, but as a “dismal scientist” (a nickname for economists) I can’t accept that. There are always unintended consequences to new policies. Bubbles would just form elsewhere. This is an important question though. Under my assumptions, people make their moves on January 1st of each year, but I suppose in reality things wouldn’t work out quite that precisely. But at the end of the day, as well, it will probably be hard to convince a lot of people to overcome the psychological roadblocks of this contrarian investment strategy, so that the market impacts may not be so large.  After all, as you kindly pointed out much earlier, all of this has been around at least since the time of Graham and Dodd.  Thank you again for all your comments and time today.”
<br>
There were no further posts to the thread for twelve days, at which point Wade advanced a post reporting on how the earthquake in Japan affected him and his family. Mel offered his good wishes.