A Rich Life

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

Invest It Wisely Blog Links to My Article on the Intimidation Tactics Employed by the Buy-and-Holders to Silence Academic Researcher Wade Pfau

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I was thrilled to see Kevin at Invest It Wisely link in this post to my article on the intimidation tactics employed by Buy-and-Holders to silence Academic Researcher Wade Pfau.

It is my belief that this is the most important article published in the fields of economics and politics in my lifetime. I believe that the day that the New York Times writes up the story told in this article is the day that we will begin to put today’s economic crisis behind us and begin the move to the greatest period of economic growth experienced in U.S. history. When that day comes, Kevin will be able to say he had it first. He has earned our gratitude and affection and respect with his show of courage re this matter.

The Wade Pfau article is here.

Juicy Excerpt: There is now 30 years of academic research showing that the claim that it is not possible to time the market is false. There really is a wealth of research showing that short-term timing (changing your stock allocation because of a guess at to how stocks will perform over the next year or two) does not work. There is zero research showing that long-term timing (changing your stock allocation in response to big valuation shifts with an understanding that you may not see a benefit for doing so for as long as 10 years) doesn’t work. To the contrary, there is now a mountain of research showing that long-term market timing ALWAYS works. There has never been one time in 140 years (that’s as far back as we have records) when long-term timing did not produce far higher returns at greatly reduced risk.

This article exposes the cover-up. It shows how the academic researchers in this field are pressured to perform only research that helps the industry big shots and to refrain from doing research that would help millions to invest more effectively when publishing such research would undermine the industry’s most cherished marketing slogans (the phrase “timing never works” has been repeated so many times that millions of investors assume that there MUST be research supporting the claim).

The public policy implications are huge. In ordinary circumstances, stock-market prices are self-regulating. When prices get high, the long-term value proposition of owning stocks drops. That should cause investors to sell and the sales should bring prices back to fair-value levels. The relentless promotion of Buy-and-Hold strategies made the market dysfunctional. Stock were overpriced by $12 trillion in 2000. Prices always return to fair-value levels over the course of about 10 years. So we knew in 2000 that consumers were going to lose about $12 trillion in buying power by the end of the first decade of the 21st Century. There’s your economic crisis!

“Why the Heck Would I Want to Destroy the Credibility of the Academic Researcher Who Has Done More Than Any Other to Advance the Investing Strategy That I Believe Is Going to Pull Us Out of This Economic Crisis?”

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Set forth below is my response to a comment that was put to the blog last week charging me with having advanced a “screed” re Academic Researcher Wade Pfau:

You Goons say this sort of thing all the time, Trebor.

I am the biggest Wade Pfau booster alive on Planet Earth. Wade did the research showing that Valuation-Informed Indexing dramatically increases returns while also dramatically reducing risk. I am the person who developed the VII strategy. Why the heck would I want to destroy the credibility of the academic researcher who has done more than any other to advance the investing strategy that I believe is going to pull us out of the economic crisis? That’s insane.

What you are getting at, of course, is that I have argued that Wade made a terrible mistake to sacrifice his personal integrity and flip to the Goon side. He did. That’s going to follow him around for the rest of his lifetime. He will likely have lawsuits filed against him in days to come. He could land in prison. Is the popularity he has achieved by agreeing to side with the Goons and keep the Buy-and-Hold Tragedy going a few more months or a few more years worth it? I certainly do not think so.

Wade has two small children to worry about. I think in fairness that that should be mentioned. That’s a bit of an explanation. But it is not an excuse. If Wade does not possess the courage to stand up to the Goons, he needs to find another line of work. An academic researcher needs to report his findings honestly and accurately. People look to the academic research to learn the realities. You cannot let internet Goons intimidate you into saying things you do not believe.

Here is my grand summing-up article reporting on the many blog posts I wrote on my 16 months of e-mail correspondence with Wade:

http://arichlife.passionsaving.com/the-buy-and-hold-crisis/academic-researcher-silenced-by-threats-to-get-him-fired-from-his-job-after-showing-dangers-of-buy-and-hold-investing-strategies/

I love Wade, Trebor. I loved the work we did together. I miss working with him. I respect him and admire him. It breaks my heart to think about what he has done both to himself and to the many people who look to him to give helpful guidance on stock investing. I implored him not to go down the path he has gone down. Is there anything you can think of that I could have said that I did not say? If you suggest anything that makes sense, I will say it.

I will always be Wade’s friend. Any time he wants to contact me, he will get a warm welcome. You call that a “screed”.” I call it friendship. As far as I am concerned, Wade and I remain friends to this day. Wade doesn’t see it that way because he is ashamed of his betrayal. That’s something he needs to work out on his own. If he reaches a point where he wants to reestablish contact, I can promise you with 100 percent certainty that I will be there for him. Nothing would make me happier.

Please take good care. If you happen to be in contact with our friend Wade, I hope you will send him my warm regards.

Rob

ITNR #115 — Researcher Wade Pfau Was Amazed to Learn That Market Timing Always Works

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I’ve posted Entry #115 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s titled Researcher Wade Pfau Was Amazed to Learn That Market Timing Always Works.

Juicy Excerpt: If Wade Pfau did not know about this stuff, it is fair to conclude that most of the “experts” in this field do not know about this stuff. THEY DON”T KNOW. They fight like the dickens to keep this stuff covered up because they kinda, sorta suspect that they might have messed up somewhere along the line. But they don’t really know how things work.

ITNR 114 — Academic Researcher Wade Pfau Endorses Valuation-Informed Indexing

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I’ve posted Entry #114 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s titled Academic Researcher Wade Pfau Endorses Valuation-Informed Indexing.

Juicy Excerpt: Two columns back I reported on the threats that were made to Academic Researcher Wade Pfau to intimidate him into abandoning his research on Valuation-Informed Indexing. Last week’s column set forth a number of comments that Wade made to me in my e-mail correspondence with him endorsing my work. Set forth below are comments that Wade made endorsing the Valuation-Informed Indexing strategy. The links go to the blog entries at my site at which I reported on the e-mail in which Wade put forward the comment quoted.

ITNR #113 — Academic Researcher Wade Pfau Endorses My Work

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I’ve posted Entry #113 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s titled Academic Researcher Wade Pfau Endorses My Work.

Juicy Excerpt: I see the Wade Pfau story as a turning point in the ten-year saga. It’s one thing to go after an internet blogger who gets a little too big for his britches. It’s something else to go after a guy with a Ph.D. from Princeton, an associate professor whose work has passed peer review and all that neat stuff. The Buy-and-Holders are getting desperate. Very, very, very desperate.

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

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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.

Rob Bennett’s Responses to Academic Researcher Wade Pfau: #18 — The Problem Is That Not One Buy-and-Holder Today Has Confidence in Buy-and-Hold

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I would be embarrassed.

If someone on “my side” put forward a death threat, I would cringe. If someone on “my side” engaged in defamation, I would disassociate myself from the comments. If someone on “my side” sought unjustified board bannings, I would object if the site administrator went along. If someone on “my side” threatened to get an academic researcher fired from his job, I would rush to put up comments saying that I want to know what that academic researcher really believes, that silencing the researchers makes it impossible for any of us to trust what any of the researchers say from that point forward.

It’s a good idea to learn how to reduce your message to a few words, to figure out how you would make your pitch if you were trying to convince someone during the 30 seconds you would share in an elevator. So I am going to keep this one short.

Wade Pfau published research showing that Valuation-Informed Indexing has provided far greater returns than Buy-and-Hold at greatly reduced risk for the entire 140 years now in the historical record. The research of this Ph.D. from Princeton is the most important research ever published in this field. We all should be thanking him. We all should be exploring his ideas. We all should be making the shift to Valuation-Informed Indexing and encouraging our friends and neighbors and-co-workers to do the same.

John Bogle isn’t doing that. Bill Bernstein isn’t doing that. Scott Burns isn’t doing that. Jonathan Clements isn’t doing that. Larry Swedroe isn’t doing that.

They don’t believe.

It’s that simple.

If they believed, they would react differently to the news of the silencing of a great researcher. There are two legitimate responses here. One is to make the switch from Buy-and-Hold to Valuation-Informed Indexing. One is to make the case for why Buy-and-Hold remains a legitimate strategy despite the publication of the powerful new research findings.

Threatening to get the researcher fired from his job is not a legitimate response. Creating a “hostile atmosphere” (Wade’s term) for the researcher is not a legitimate response. Ignoring the research is not a legitimate response. Ignoring the story of the silencing of the researcher is not a legitimate response.

The Buy-and-Holders do not have confidence in their strategy. That’s 11 words. That’s the story here.

They follow it. There is a mountain of evidence showing that they follow it. They are not lying about that part.

But they don’t believe in it. Not deep in their hearts.

The only question that remains is when they will work up the courage to say that publicly and thereby let the effort to learn what does work to proceed.

I hope that happens soon. I have a funny hunch that deep in their hearts every last one of the Buy-and-Holders hopes the same thing. I promise to continue doing my part to bring them to a point where they feel able to say The Three Magic words and thereby to see their long-deferred dream of promoting a smart, simple, safe and truly research-backed strategy for millions of middle-class investors come true.

Hate is not a sound long-term investing strategy. Love is the answer. I know that much for sure.

Rob Bennett’s Responses to Academic Researcher Wade Pfau: #17 — How Valuation-Informed Indexing Will Reach Its Tipping Point

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Wade says that I “desperately” want to hear researchers and other experts in this field say that the Old School safe-withdrawal-rate studies need to be corrected. The suggestion is that I place too much importance on this matter. Others have said similar things. My ten-year effort to get the errors in the retirement studies corrected has been referred to as my “obsession.” I have been told that I am on a “crusade.” It has been said that my passion re this matter causes me to suffer “death by verbosity.”

I don’t buy it.

When I gain the right to post honestly on the internet re SWRs and many other critically important investment-related topics, it won’t be only Rob Bennett who gains that right. Robert Shiller (the author of Irrational Exuberance) will gain that right. Vanguard Founder John Bogle will gain that right. William Bernstein (author of The Four Pillars of Investing) will gain that right. And on and on and on.

When I gain the right to post honestly, we ALL gain the right to post honestly. There’s huge leverage in that. We have denied ourselves the right to speak openly and plainly and honestly and realistically about how stock investing works for 30 years now. Behind the scenes, we have achieved huge advances in our understanding of the realities during those three decades. When we give ourselves permission to talk about what we have learned (and thus for the first time to fully understand it — we humans take in knowledge by talking it over), we will shoot ahead at an amazing pace. Can you imagine where we would be today in the electronics field if a law had been passed in 1981 saying that advances in that field had to cease because it would hurt the feelings of the people who didn’t know everything there was to know about electronics in 1974 for us to continue to move ahead? There’s huge leverage to be had by permitting thousands of smart and good people to use their brains again and help us all learn how stock investing really works even when telling that story means pointing out that there was a time decades ago when we didn’t know it all perfectly.

The Buy-and-Holders did something potentially wonderful back in the early 1970s. They developed an investing strategy rooted not in vague and subjective impressions and opinions but in the hard stuff, academic research based on an examination of the historical return data. It’s that breakthrough that has permitted us to make so much progress. There would be no Valuation-Informed Indexing today had it not been for work the Buy-and-Holders did in earlier times arguing that we should research investing questions rather than just offer off-the-cuff subjective opinions about them. What we didn’t see in the early 1970s was how the power of research could be used to hold us back rather than to push us forward. It is the claim that Buy-and-Hold is rooted in research that has made it so influential a strategy. But, because the Buy-and-Holders got it wrong, all that influence has been used to steer investors in the wrong direction. The road out of this economic crisis is to permit the researchers to report honestly and accurately what they learn when they study the data. It’s not putting numbers into tables that is the purpose of investment research. It’s discovering truths about investing that is the purpose. To discover truths, we need to become able to acknowledge errors when we make them.

That’s why this is such a big deal. That’s why I am “desperate” to see the Old School SWR studies corrected. Causing millions of people to suffer failed retirements is a big deal. The Buy-and-Holders want to avoid acknowledging the errors they made in the studies in the worst way. The Old Boys Club has sent down the word — you spill the beans re this one and you’ll never be able to get work in this field again. But what happens if the economic crisis grows so terrible that even people in the investing field begin to feel the need to take action to bring it to an end? I believe that we will then see forward movement. And it won’t be a little bit of forward movement. Valuation-Informed Indexing is close to its Tipping Point as a breakthrough idea. Once we get a few of the big names in this field developing the courage to stand up to the Goons, we will see an avalanche of investing insights. We will as a society experience the benefits of 30 years of insights over the course of about six months of time. It will be something else!

We need to get to that Tipping Point. There’s nothing intellectually we need to do. We have the data that shows that Valuation-Informed Indexing is superior. We have the research that shows that Valuation-Informed Indexing is superior. We have the expert statements showing that Valuation-Informed Indexing is superior. What we need is a means to spread the word to the millions of middle-class investors crying out for a more sensible and effective way to invest. There’s a sense in which we even have that. The internet is a powerful communications medium. We could spread the word quickly if those who knew what works were not afraid of what will be done to their careers if they dare to speak up. And we even have rules in place at all our boards and blogs protecting those people from the brutal tactics of the Buy-and-Hold Goons. We are on the 99-yard line. All we really need today is effective enforcement of the rules that in theory already are in place at the web sites where we need to be spreading the word.

Set forth below are 10 examples of experts who would love to be able to tell the truth about stock investing, if only as a society we were willing to do what we need to do to make them feel safe doing so.

1) I learned about the errors in the Old School safe-withdrawal-rate studies by reading John Bogle’s book. Bogle explained that Reversion to the Mean is an “Iron Law” of stock investing. If high prices always lead to low prices, the safe withdrawal rate obviously cannot be the same when prices are high as it is when prices are low. Bogle would love to feel free to tell the truth about stock investing, as revealed by the last 30 years of academic research. We should let him.

2) Years before all of the major publications in this field acknowledged the errors in the Old School studies, one of the Goons asked William Bernstein whether he agreed with my claim that the Old School studies employed an invalid methodology. Bernstein said that “of course” the methodology used was valid but that anyone who was giving thought to making use of one of the Old School studies to plan a retirement would be well-advised to “FuhGedDaBouDit!” The second part of his statement is obviously just a down-to-earth way of saying that the methodology used in the studies was analytically invalid (if a valid methodology had been used, the numbers generated by the studies would not have been so wildly off the mark). Bernstein would love to feel free to tell the truth about stock investing, as revealed by the last 30 years of academic research. We should let him.

3) Yale Economics Professor Robert Shiller described the theory behind the Valuation-Informed Indexing concept in his bestselling book Irrational Exuberance. But Shiller held back from including even one paragraph in the book telling investors how they should invest now that we know that Buy-and-Hold strategies can never work in the long run. Shiller told us why in an interview in which he said that he has never dared to go public with all he knows about how stock investing works because he would be smeared as “unprofessional” if he did so (I have a funny hunch that I might know what investing strategy it would be that would inspire its followers to do something like that). I wouldn’t be at all surprised to learn that Shiller has already written Irrational Exuberance II, the book that describes what it is that investors need to do now that they know how dangerous it is not to practice long-term timing. Shiller would love to feel free to tell the truth about stock investing, as revealed by the last 30 years of academic research. We should let him.

4) Philip Taylor is a blogger who organizes the annual Financial Blogger Conferences. I submitted an article on Valuation-Informed Indexing for inclusion in the conference magazine. Phil rejected the article not because he does not see merit in the investing strategy but solely because he knows that bloggers don’t today know enough about the dangers of Buy-and-Hold and the benefits of Valuation-Informed Indexing to appreciate how much they would be helping their readers to lead the transition to the new strategy. He told me: “I assure you, my rejection of your article has nothing to do with my opinion on your particular strategy. I don’t need convincing of anything. Your way is perfect as far as I am concerned. Go preach it to the nations. #FinCon12, though, is not the right pulpit for this topic. The bloggers just don’t care. They have shown time and time again in the surveys that these types of topics are not of interest. Please respect that I know my audience.” Phil is right in what he says about out fellow bloggers. I have experienced this indifference to the new strategy on hundreds of occasions. But what if Bogle and all the others came out with public statements saying that Buy-and-Hold is the past and Valuation-Informed Indexing is the future? Would financial bloggers not be thrilled to lead the effort to get accurate and honest and realistic information about how to invest in stocks out to their readers? The question answers itself. Taylor and all other financial bloggers would love to feel free to tell the truth about stock investing. We should let him.

5) Mike Piper is the author of the Oblivious Investor blog. I had a long talk with him at last year’s Financial Bloggers Conference about the ban on honest posting in place today at his site and in place today at a good number of other sites. Mike told me that “there is nothing I would like more” than to see a lifting of the ban. But Mike has a problem. He permitted honest posting at his site for a time and my daily comments pointing out the dangers of Buy-and-Hold enraged his readers, most of whom follow the Buy-and-Hold strategy. If Mike were to permit honest posting, would he be able to retain his readership? If Bogle and all the others spoke out, he sure could. If Mike were giving honest and accurate and research-supported investing advice, his readership would skyrocket and all those Buy-and-Hold readers who are upset today to read the truth about stock investing would be thrilled to do so. But Mike needs our help. He needs Bogle and lots of others to give him “cover.” Mike would love to feel free to tell the truth about stock investing. We should let him.

6) Financial Planner Michael Kitces wrote at his blog that: “There are time-periods where stocks are a terrible addition to that portfolio. Yet inexplicably, we as planners STILL tend to suggest that it is ‘risky’ to not own stocks when in reality the only material risk is to our business and ability to keep clients, NOT to the clients’ goal.” I think it would be fair to say that Michael very much looks forward to the day when he can tell his clients the truth about stock investing. He has told me in e-mail correspondence that he knows of numerous financial planners who were in the days following the 2008 crash discussing the possibility of starting to let their clients in on some of the stuff that all those who work in this field today know about but dare not give voice to in public comments. Michael would love to feel free to tell the truth about stock investing. We should let him.

7) New York Times Financial Blogger Carl Richards has said of my work: “I have read everything I can about Valuation-Informed Indexing. What you are doing has huge value.” But Carl too banned me from his site. Again the reason was the burning rage that my reports on what the academic research says about stock investing caused in many of his readers, people who were trying to maintain a belief in Buy-and-Hold principles three decades after the research showed that there is precisely zero chance that Buy-and-Hold can ever work in the long term. Carl would love to feel free to tell the truth about stock investing. We should let him.

8) In the wake of the onset of the economic crisis, a federal commission was formed to identify its cause. The effort bore no good fruit. Democrats on the commission blamed the policies of Republicans. Republicans on the commission blamed the policies of Democrats. No one paid any attention to what the commission said because we all hear Democrats yelling at Republicans and Republicans yelling at Democrats on a daily basis. I have a funny hunch that the members of the commission would have loved to have felt free to identify the obvious true cause of the crisis. Stocks were overpriced by $12 trillion in 2000. Even John Bogle, the King of Buy-and-Hold, acknowledges that stock prices always return to fair-value levels after the passage of 10 years or so. Bogle calls this an “Iron Law” of stock investing. So everyone paying attention knew in 2000 that roughly $12 trillion of consumer buying power would be disappearing from our economy by sometime near the end of the first decade of the 21st Century. There’s your economic crisis! The members of the economic crisis commission would love to feel free to tell the truth about stock investing. We should let them.

9) Rajiv Sethie, a Professor of Economics at Columbia University, said of my work: “Rob Bennett makes the claim that market timing based on aggregate PE ratios can be a far more effective strategy. I can see how it could be true.” Rajiv would love to do the research proving it to be so and to win the Nobel prize that would follow from doing so. If he weren’t aware of what was done to Wade Pfau when he did this and what has happened to numerous others in this field who have dared to speak honestly about what the last 30 years of academic research shows us, Rahiv would have done that research a long time ago. If he hadn’t, hundreds of other fine academic researchers would have jumped at the chance to win that Nobel prize. Rajiv and hundreds of other fine academic researchers would love to feel free to tell the truth about stock investing We should let them.

10) The first two words in the February 2005 e-mail sent to me by Dallas Morning News Columnist Scott Burns in response to my e-mail pointing out the errors in the Old School SWR studies were: “You’re right!” Scott asked me in that e-mail for my telephone number so that he could interview me in preparation for an article letting his readers know of the dangers of following the Old School studies. He thought better of it. Scott later wrote an article pointing out that “some people” believe that the Old School studies are analytically invalid. But he was careful not to let his readers know of his personal viewpoint that these criticism are on the mark. And he was careful not to mention the name of the person who pointed out the errors in the studies to him. And he was careful not to include a link to my Retirement Risk Evaluator calculator (which reports the SWR numbers accurately) in his article. And he was careful to put forward numerous defamatory comments about me to keep himself in the favor of the Lindauerheads and the Greaney Goons. Scott would love to feel free to tell the truth about stock investing. We should let him.

We all want to feel free to tell the truth about stock investing. Why wouldn’t we? We all benefit from knowing how stock investing works. And we can only understand things that we feel free to discuss. Permitting honest posting on safe withdrawal rates and many other critically important investment-related topics is a win/win/win/win/win.

So why don’t we do it?

We don’t like to have death threats directed at us. We don’t like to have tens of thousands of acts of defamation directed at us. We don’t like to be banned from the internet sites we frequent. We don’t like to have internet Goons sending defamatory e-mails to our employers in efforts to get us fired from our jobs.

Once even a small number of influential people speak out in opposition to the Campaign of Terror, it’s all over. Buy-and-Hold is no more at that point. Valuation-Informed Indexing is the new dominant model at that point.

The Tipping Point is one price crash away. It is the next price crash that will change things in a way that will permit us to to begin work on bringing about the greatest period of economic growth ever seen in U.S. history. There is a reason why it’s darkest before the dawn. It often takes a whole big bunch of darkness to help the humans work up the courage to do what deep in their hearts they knew for many years very much needed to be done.

Rob Bennett’s Responses to Academic Researcher Wade Pfau: #16 – The Secret to Solving the Entire Mystery

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Everyone wants to invest successfully. So there’s lots of money to be made in helping people do so. If Valuation-Informed Indexing is as superior as Wade Pfau’s research shows it to be, there should be hundreds of businesses being formed to spread the word in one way or another. Instead I am talking all the time about the Goon Squads who follow me around everywhere I post on the internet. How can this be? If I knew of a better way to invest, the world would beat a path to my door. No one would listen to the Goon Squads. There’s something weird going on here.

I will reveal the secret to solving the mystery by telling you a story about my mother and my older brother Richard.

Richard is 65. He has been smoking two packs of cigarettes since he was 16. My mother died a few years ago. In the years before she died, she was worried about how things were going to go after she passed from the scene. One of the things she worried about was my brother’s health. She would say to me: “Why doesn’t he quit? He knows that smoking that much is bad. He’s so smart!”

Of course he knows. We all know that the bad things we do to ourselves are bad. The trouble is that, once we find emotional comfort in some bad behavior (for me it’s eating too many chocolate chip cookies, for my mother it was playing the slot machines in Atlantic City), we use our brains not to avoid the bad behavior but to rationalize it. My brother can tell himself that we all die from something, if it’s not the cigarettes that get him it will be something else. I can tell myself that I am healthy except for the weight thing and that the extra weight hasn’t caused me to have a heart attack yet. My mother could tell herself that, if you count the prizes she won at the casinos, she probably broke even in the end. We all break even with the casinos in the end. In our minds.

I don’t say that people shouldn’t be able to sell cigarettes or chocolate-chip cookies or chances to win a million dollars at the slot machines. Making that stuff appear as appealing as all get-out is all part of the wonderful game, so far as I am concerned. I say that we have a right as American citizens to ruin our lives however we please!

But I say that The Stock-Selling Industry crosses a line when it tells us that there is some mystical, magical research somewhere that shows that there is no need to consider price when buying stocks.

There is no such research. You don’t have to take my word for it. Wade Pfau holds a Ph.D. in Economics from Princeton. If there were any research supporting Buy-and-Hold, he would have found it. He looked. He looked hard. He found nothing. That’s because there is nothing.

It’s a lie.

We can use softer words. We can say it’s marketing. Like the idea that you are really going to win the lottery. Like the idea that eating cookies will make your troubles go away. Like the idea that smoking eases stress in anything but the most temporary way.

People trying to sell us junk tells lies all the time. But the lie that The Stock-Selling Industry tells us is an especially pernicious one.

We all know the other side of the story when it comes to cigarettes and cookies and slot machines. A lot of us fall for the lies (and have a great deal of fun doing it!). But we all know the other side of the story. We are exposed to different sources of information. Doctors tell us the truth about cigarettes. Nutritionists tell us the truth about cookies. Friends tell us the truth about casinos.

Who tells us the truth about stock investing?

Just about no one does. There’s too much money in this field for the people who make a buck telling the lies to permit the other side of the story to be told. So it is made clear to people like Wade Pfau that they either get with the program or they find another line of work. This is a field in which the academic research is cited on a daily basis. But not honestly. Honest reports of what the research says would undermine the marketing slogans. Stocks are not always best for the long run — there are times when money market accounts offer a better deal. Timing always works — so long as it is the long-term variety. There really is such a thing as a free lunch — Valuation-Informed Indexers earn far higher returns while taking on far less risk. They always have. They always will. Learning is a free lunch. That’s how it works in the field of stock investing as much as that is how it works in all other fields. Learning how stock investing works is a free lunch. Learn how stock investing works and you’ll be able to retire many years sooner. You’ll be able to live a richer life.

I want to be able to teach millions of middle-class people how to live richer lives. That’s the work I’ve taken on. That’s why the Buy-and-Holders hate me with such a burning passion. The more people who come to learn the truth, the fewer there are to fall for their marketing slogans.

It’s not just that the experts in this field lie to us. It’s that we want them to lie to us. So they can tell us the most obvious lies imaginable and get away with it. Who is going to call them on it? The people begging for more lies?

We’re in a trap and we need to find a way out. The only way out is through learning. Fewer people smoke today than in earlier days. We got accurate information out to people and they elected not to take up the habit. Some couldn’t give up the habit entirely but cut back. Those who haven’t cut back are thinking about it. Perhaps some day the time will be right.

Investors are always going to fall for Get Rich Quick schemes. I cannot change that.

But I think that I should be able to call people out on it when they claim that there is research supporting their mumbo-jumbo marketing claims. If we cannot do that, there’s really no hope. We all find emotional appeal in Get Rich Quick investing schemes and now we have “experts” telling us that there is “research” supporting those emotional impulses. And there are gangs of internet Goons who direct savage smear campaigns at anyone who tells the truth about what the research says. You can’t beat that. That’s too much. If that remains our story, the free enterprise system goes down.

I have been able to persuade people of the merits of following research-supported strategies when I have been able to find places that for a time permitted civil and reasoned discussions of investing. But the Buy-and-Hold Goons want no part of civil and reasoned discussion. So those places don’t last long. Where do we go from here?

If the experts would tell us the truth, we all would be better investors. But there is an awful lot of money in it for them if they keep repeating the Buy-and-Hold lies.

If we insisted that the experts tell the truth, they would have to do it. But how can we insist when we don’t understand the realities ourselves? We would have to become informed to insist. And we cannot become informed without first insisting. It’s a Catch-22.

My hope is that a deepening of the economic crisis will melt hearts.

Stock investing is intellectually easy. It is emotionally hard. We need a new group of investing experts who tries to help us overcome our negative emotions rather than tries to make a quick buck off of exploiting them.

I don’t want to outlaw cigarettes. But I want people to be able to report honestly that smoking causes cancer.

Buy-and-Hold Investing causes failed retirements and economic crises.

Rob Bennett’s Responses to Academic Researcher Wade Pfau: #15 — No Apologies?

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Where are the apologies?

I’ve generated hundreds of important investing insights in my podcasts and weekly columns and articles and discussion-board comments of the past 10 years. The Buy-and-Hold Machine is not happy to see me telling people about those insights and yet has not been able to find any flaws in the academic research that supports them. Let’s say that the insights are all baloney. Let’s say they are all wrongheaded. All but one. The first one cannot be wrongheaded because even The Buy-and-Hold Machine now (tens years later) agrees that that one is on point. The Old School safe-withdrawal-rate studies got the numbers that millions of middle-class people used to plan their retirements wildly wrong. There’s no argument anymore than I am off base re that one. We have achieved a consensus at least re that one.

So where are the apologies?

I am owed an apology re that one even if every other insight I have generated is baloney, no? It was no small insight. One of the primary reasons why people invest in stocks is to finance their retirements. The Old School studies didn’t get the retirement numbers a little wrong, they got them wildly wrong. A failed retirement is a serious life setback. I helped everyone out — or at least I tried to help everyone out — when I dared (it took courage) to step forward and tell the truth about safe withdrawal rates. I helped — or tried to help — the retirees who would have suffered failed retirements if I didn’t work up the courage to take on The Machine (the retirees may suffer failed retirements all the same because of the ten-year cover-up but I also spoke out in the strongest possible terms against the cover-up). And I helped the “experts” in this field who were leading the cover-up. They have incurred hundreds of billions of dollars in potential legal liabilities. I did all I could to help them avoid those liabilities. No?

So where are the apologies?

Where are the expressions of gratitude? John Bogle has not sent me an e-mail saying “Thanks, man!” Huh? What’s the problem here?

Where are the offers to help me spread my ideas far and wide?

Where are the links to my web site?

Where are the articles demanding that the Goons drop their Campaign of Terror against our board and blog communities, including a number of communities that I built pretty much with my bare hands?

Is there a problem?

There is a problem.

We are ashamed.

All of us.

We need to get over it.

Do you know why the Buy-and-Holders act like they know it all? A number of people who agree with my general take have said that it is because there is money in it. What industry wouldn’t want people to believe that the product it offers for sale is worth buying at any price imaginable? That’s what Buy-and-Hold says, is it not? When the stock-selling experts tell us not to time the market, what they are really saying is not to take price into consideration when buying stocks. Just buy stocks! Lots of them! Price be darned! As Church Lady might observe, “How convenient!”

I certainly agree that money-making comes into play here. I do NOT believe that this is the primary problem, however. I think that some of my friends may at times fall into the trap of being a little too cynical.

Say that we were to open up every internet board and blog to the discussion of Valuation-Informed Indexing. Say that the idea spread like wildfire. Say that one year from now 90 percent of investors were Valuation-Informed Indexers. Would the profits of The Stock-Selling Industry go up or down?

They would go up. Investors who understand how stock investing works have confidence in their financial futures. People who have confidence in their financial futures buy stuff. If most investors became Valuation-Informed Indexers, the fears that keeping consumers from spending and extending and worsening our economic crisis would be overcome. We would see an economic boom. And investors who understand how stock investing works buy more stocks than investors who are intimidated by the subject. Valuation-Informed Indexing is common-sense investing. If the experts got behind the idea, more people than ever before would buy stocks. The transition from Buy-and-Hold to Valuation-Informed Indexing would be a boon for millions of middle-class investors and for the industry that advises them both.

So this is not really a money thing. Those who participated in the ten-year cover-up of the errors in the Old School SWR studies are worried about lawsuits. To that extent it’s a money thing. But the opposition to honest posting came long before lawsuits were a big concern. The core problem here is something different. If we are going to overcome this mysterious force that is holding us back from an economic boom and that is threatening to pull us into the Second Great Depression, we need to develop a true understanding of what it is.

What is really at the core of all this craziness?

On the surface, it appears to be arrogance. The Buy-and-Holders don’t admit mistakes. They don’t ever, ever, ever, ever, ever admit mistakes.

But what’s behind the arrogance? Why are they like this?

Say that you were a doctor and that you thought that cutting someone open might help them with their problem but you were not sure. What would you do? A lot of us would not be able to cut unless we were sure. So we would try to convince ourselves that we were sure. Then, if there were a bad result and someone questioned our decision, we would become angry and defensive. The person questioning the choice is giving voice to our own doubts. So their words really hurt. And it becomes important to us to silence that voice.

That’s why the Buy-and-Holders hate me. It’s not that I am saying something they don’t think makes sense. If they thought that what I said doesn’t make sense, it wouldn’t bother them. They would laugh it off. They wonder themselves if what I am saying is right and, when I give voice to their doubts, it makes them go crazy. The want me to shut up. And I won’t. Not because I want to hurt them. Because I believe that they are on the wrong track and that deep in their hearts they want to be on the right track. So I am doing for them what they would want me to do for them if they were able to think straight about these issues.

Why can’t the doctor acknowledge that he really doesn’t know if cutting is a good idea or not? Because cutting is a big deal. No one wants to be cut for no good reason. You can’t just go ahead and cut unless you are sure. Unfortunately, the humans are born ignorant. We don’t it all. Sometimes we are guessing. That’s sometimes so even when we are making decisions as important as whether to cut another human body or not.

If a perfect world, the investing experts could continue doing studies until they learned everything there is to know and only then offer any advice to investors. We don’t live in an ideal world. In the world in which we live in people need investing advice TODAY. We don’t have perfect information today. So we might mess up. But we cannot take a pass. We have to recommend something.

The Buy-and-Holders did the best they could given the limited extent of their knowledge when they designed the Buy-and-Hold Model. But, since the matter they were advising people on (what to do with their retirement money) was so important, they acted like they were a lot more confident than they were. And, because they cannot stand the thought of having caused the great human misery they caused if they really are wrong (as they now suspect), they become highly defensive when challenged. They cannot admit they were wrong. They feel that their lives will have been wasted if they admit that.

I don’t say that the investing experts did nothing wrong. What I say is that we all did wrong too. We should have made clear to them that we don’t expect them to have all the answers. We never should have started calling John Bogle “Saint Jack.” That put him in a terrible spot. That made it that much harder for him to acknowledge his mistakes. He feels that he needs to live up to the exalted view we have of him. We would have been better friends if we had made it a practice to ask hard questions of him, to always challenge him to learn more and to sharper his ideas over time.

So it is not only John Bogle who today is feeling shame. All the people who followed John Bogle’s ideas are feeling shame too. That’s most of us.

The shame makes us defensive and our defensiveness causes the problem to grow worse and the problem growing worse makes us feel more shame. We’re caught in a trap of self-recrimination.

I believe that the next price crash will help. The next crash will scare us more than did the first one. People who become very scared give up their pride in desperation. If we give up our pride, we will open our minds to accepting ideas that show that we got things wrong in earlier times. That sort of thing doesn’t seem like such a big deal when things reach a point where your way of life is at risk.

We need to hurt. We need to suffer. It’s the only way past the defensiveness and the anger and the shame that keeps us in ignorance today.

We all want the same things. I did not develop the Valuation-Informed Indexing concept by myself. Hundreds of people helped me. Including lots of Buy-and-Holders. Including John Bogle.

I wish that John Bogle and my other Buy-and-Hold friends could see that and that it could help them feel less ashamed of the mistakes they have made. If they felt less shame, they would find it easy to thank me. And I would find it easy to shake their hands and say “don’t worry about it” and begin working together with my Buy-and-Hold friends to rebuild our broken economy.