A Rich Life

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

Carolyn McClanahan, Director of Financial Planning at Life Planning Partners, Inc.: “Valuation-Informed Indexing Is the Same Song We Sing. Glad You Belong to the Same Choir We Do.”

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I’ve been sending e-mails to various people letting them know of the efforts by the Buy-and-Hold Mafia to silence Academic Researcher Wade Pfau after he published research showing the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies. Set forth below are reports on five responses I received.

1) Nancy Rapoport, a Professor of Law at Boyd School of Law, said: “Thanks so much for reaching out to me.”

2) Golaka C. Nath, a Researcher for the Clearing House Corporation of India, wrote: “Thanks. I will surely look at the article.”

3) David Zetland, who teaches a class on Environmental Economics and Policy at the University of California at Berkeley, told me: “I agree that ‘advisers’ are not very helpful but discussing these issues is not within my expertise/vocation.” David included a link to an article. I wrote back: “I understand re the expertise matter. However, given the message of the article you linked to, I think an argument might be advanced that those put forward as the ‘experts” in this field may in reality not be much more ‘expert’ than you or I. Ssssh! Please don’t tell anyone I said that! I may have gone ‘controversial again! Please take good care.” David shot back a one-word reply: “Agreed.”

4) Carolyn McClanahan, the Director of Financial Planning at Life Planning Partners, Inc., told me in a tweet that: “Valuation-Informed Indexing is the same song we sing. Glad you belong to the same choir we do.” I tweeted back to Carolyn that: “I saw that Michael Kitces followed you. Michael knows all the best people in this field!”

5) Edward Tower, an Economics Professor at Duke, and a Bogleheads Forum participant, said: “Rob, Thanks. Ive had a quick look. I wish that Robert Shiller had bond rates of return on his web site, not just long-term bond yields, so one could use his data to test this hypothesis.” I wrote back: “Thanks for your response. There sure are lots of angles. It would definitely be a good thing if more effort were directed to exploring all of them.”

“You Can’t Use Cognitive Dissonance As an Excuse for Putting Forward Death Threats and Tens of Thousands of Acts of Defamation and Threats to Get Academic Researchers Fired From Their Jobs. That’s Why You Goons Cannot Back Down Now.”

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Set forth below are the words of a comment that I recently put to the Goon Central board:

if he would try to claim in court that his internet business was ruined he would likely be asked why he was the most prolific poster at the website he is claiming harmed him. 

What you are saying here would be so if it were ONLY the Goons who were doing me harm, Ataloss. That’s what I thought the situation was when I sent my first e-mail to Motley Fool about the Greaney problem.

I learned something when that e-mail didn’t get the job done. And of course I learned more when my good friend Jack Bogle didn’t respond to my four e-mails to him re the Lindauer matter.

It ain’t just the Goons who are a problem here. Not by a long shot. I don’t say anymore that it is only the Goons.

This is a society-wide problem. Dab brings up a telling point when he says that, when he goes on Google to find the value of his portfolio, they tell only the nominal number. You can find the P/E10 value on Google. They give you what you need to figure out the real numbers. But they don’t assemble them for you. And they should. Why don’t they?

Shiller’s advance was HUGE. His word was “revolutionary.” That ain’t hype. The move from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of investing analysis. By a factor of 10. Reducing the risk of stock investing by 70 percent is no small thing. We need to rewrite all the textbooks. Experts are people who spend a lot of time in school. The more time you spent in investing school, the more you believe in Buy-and-Hold because that is what is taught there. So we are in a situation where the experts are the people least able to see the straight story. It’s a mess.

Now —

We’re not going to put everyone in jail who doesn’t understand this stuff. That’s 90 percent of the freakin’ population! You don’t put 90 percent of the population in jail. It’s not a practical idea.

But this is the greatest act of financial fraud in  U.S. history. So there obviously need to be prison sentences. So what the heck do we do?

We bring out our old friend Cognitive Dissonance. Cognitive Dissonance is real. It is written up in the psychological literature. It explains what we have seen. Jack Bogle is a great man, a good man and a smart man and a hard-working man and a pioneer in an important field. He is also a human. This is bigger than him. He had no idea that this Shiller stuff was so important. He believes in Buy-and-Hold on at least one level of consciousness and so he had to tell himself things to persuade himself to keep doing that when he was faced with evidence that the Shiller stuff is right. Millions of people did similar things. All of those people are going to be left off the hook. They messed up. Humans mess up from time to time. They also did lots of good things. Case closed.

That’s true with the Goons too. Greaney and Lindauer believe in this stuff on some level of consciousness. So in an ideal world they would be off the hook too. But we have a problem.

You can’t use cognitive dissonance as an excuse for putting forward death threats and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. Permit that and you might as well take all the laws off the books. There’s an additional dimension to this for you Goons because you were tricked into believing that these nasty internet tricks that low-lifes use to deal with “trolls” are not in the most extreme cases violations of law. We haven’t had people go to jail for this sort of thing yet because the internet is a new communications medium. But all the elements of crimes are there and recorded in Post Archives.

That’s why you Goons cannot back down now. Fail to back down, you go to prison. Back down, you go to prison. So your attitude is: In for a dime, in for a dollar and hope for the best. I get it. Loud and clear.

There’s not anything that I can think of that I can do to help out. I obviously want to bring the economic crisis to an end. That’s job #1. But if I lie and say that I don’t think you’ll go to jail, you don’t believe me. And, if I tell the truth and say you’re going to jail, you are too afraid to come clean.

My thought is that the best thing to do is to focus on the positive side of the story, which is huge. The positive is so big that I believe that we can get lots of people to let the bad stuff go.

But can we get enough people to let the bad stuff go to keep you out of prison? Before the Wade Pfau thing, I thought there was a small chance that we could pull that off. I no longer believe that. I feel obligated to tell you what I believe re this matter because going to prison is a very big deal and I do think of you as friends whatever you say about it. So, following the Wade Pfau thing, I started mentioning this point with the hope that we could at least keep the prison sentences as limited as they possibly can be at this point.

It does nothing for me to see my friends go to prison. I am not going to say that I believe this can be avoided at this point because I personally do not believe it can be avoided. But there has of course never been a situation quite like this one before. So no one knows anything with certainty.

The reason I post here is that Job #1 is to bring the economic crisis to an end. None of us make it to the other side if we don’t figure out a way to pull together and make that one happen. The fear you Goons have of going to prison is part of the reason why we cannot pull together. So I have a responsibility to come here and do what I can do.

If you Goons didn’t matter, I wouldn’t be here. Bogle’s unwillingness to deal with the Lindauer matter gives you Goons a power to do yourselves and others harm that otherwise you would not possess. If Bogle does his part, I am out of here. If Bogle does his part, this place no longer exists. I have ASKED Bogle to do his part on numerous occasions. I am clean re this aspect of the question, Ataloss.

Rob

“It Is Natural That Powerful People Will Do What They Can to Protect Their Interest. It Is the Norm in the Academic World and In the Broader World. I Am Grateful That You Write About It.”

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I have been sending e-mails to various people letting them know of how the Buy-and-Hold Mafia silenced Academic Researcher Wade Pfau after he published research showing the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies. Set forth below are reports on five of the responses I received.

1) Alessandro Acquisti, Associate Professor at Carnegie Mellon University, said: “Thanks for the link.”

2) Jay Desai, Assistant Professor at Shri Chimanbhai Patel Institute of Management and Research, said: “I have gone through your article. I also believe that no market in the world is efficient as explained by the Fama-French Model.”

3) Jing Chen,an Assistant Professor at the University of Northern British Columbia who has done important research that attempts to integrate physics, biology, economics, information science and other fields and to provide an entirely new foundation for economic theory, said: “Thanks for your message and your article.  It is natural that powerful people will do what they can to protect their interest. It is the norm in the academic world and in the broader world. I am grateful that you write about it.”

4) Joe Fuller, a co-founder of Monitor Group, a multinational consulting firm, said: “I’m afraid this literature is not anything I’m remotely expert in, so I’m afraid I’m not comfortable taking a position.”

5) Steve Jewson, a Vice President for Model Development at Risk Management Systems, said: “I like it. It makes sense to me.”

Valuation-Informed Indexing #129 — The Safe Withdrawal Rate Scandal Continues

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I’ve posted Entry #129 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Safe Withdrawal Rate Scandal Continues.

Juicy Excerpt: Even professionals are still being taken in. There was a survey of financial planners performed not too long ago that showed that only one in three believe that it is necessary to consider valuations when determining how much a client needs to have in his portfolio to finance a safe retirement. These are people who charge money for their investing “expertise.” For so long as only a minority of the professionals understand the basics, how are the non-professionals ever going to get up to speed?

Valuation-Informed Indexing #123 — Shiller’s Chilling Words About the Limits to Tolerated Discussion of the Investing Realities

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I’ve posted Entry #123 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Chilling Words About the Limits to Tolerated Discussion of the Investing Realities.

Juicy Excerpt: Shiller says early in his lecture that he was a “total outcast” when he first began exploring his new investing model. He notes that: “I had tenure, so I could do it.” But, still, “you don’t want to do anything that is too out of fashion.” Fortunately, “we have a system that allows it to happen and I’s very glad to have that.”

The statement is chilling when you consider the impulse behind it.

“There Is an Unspoken Code in the Finance Industry That You Don’t Call Out a Fellow Investing Advisor Who Is Talking Nonsense”

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Set forth below is the text of an answer that I posted to the Quora site to the question “Why do so many people trust stock analysts, investment banks or big audit firms when their conflicts of interest are obvious and they’re involved in fruad scandals all the time?”:

Twelve reasons:

1) Even the worst of these people mix in lots of true stuff with the false stuff and people are fooled by the true stuff into thinking they are dealing straight with them;

2) The best of these people (a not small number — there are many good and smart people working in this field) offer truly wonderful advice without charge and properly inspire confidence in the entire industry by doing so.

3) People are intimidated by investing. They believe they cannot possibly understand it (they are wrong, but this is what many believe). So they feel they have no choice but to place their trust in “experts”;

4) The stuff that these people say that is most dangerous is generally stuff that appeals to our Get RIch Quick impulse (we all have one). Our emotions override the voice of common sense telling us to be wary;

5) We are still in the early days of our discovery of what really works in stock investing. So there is no one who today can with a high level of confidence offer truly sound advice. So long as that remains the case, the stuff that the bad guys put out will sound at least plausible;

6) Stock market prices correct only over long periods of time. Stocks have been dangerous since early 1996. But the market performed amazingly well in 1996, 1997, 1998 and 1999. People who stuck with high stock allocations at a time when that was a very bad idea received lots of short-term positive feedback for doing so;

7) The checks and balances that help us in many other areas of life endeavor do not work well in this area. In politics, we count on the Democrats to tell us when the Republicans are playing games and on the Republicans to tell us when the Democrats are playing games. In stock investing, there is no other side. Bull markets last for years and during those years everybody profits from pretending that the bull market gains are real. So we hear all one side of the story for many years and then all the other side of the story for many years (after the bull becomes a bear);

8) Journalists don’t do a good job in this area. Journalists who cover politics are skeptical. Journalists who cover investing are intimidated by the subject (journalists tend not to be good with numbers). So they become excessively indebted to their “sources”:

9) Academics don’t do a good job in this area. I have spoken to numerous academics who have told me that they don’t have confidence in the conventional investing advice but that they are too afraid of what would happen to their careers to be willing to speak out or to do “controversial” research. Bull markets create so much imaginary money that they compromise even academics, who are of course supposed to remain independent;

10) Economists don’t do a good job in this area. The conventional investing advice is rooted in long-discredited economic theories that have hung around because lots of rich and powerful people have built careers rooted in a widespread belief in those theories. These people oppose advances that would benefit millions for self-interested reasons (of which they are probably not fully self-aware);

11) Cognitive dissonance is a powerful force and an exceedingly counter-intuitive force. Does an alcoholic know that he is ruining his life? He does or else he would not be so defensive when asked if he has a problem. But he also doesn’t or else he would take action. Humans are rationalizers. We LOVE investing experts who support our most self-destructive choices because we want to believe in those choices and we are desperate to hear seemingly logical defenses of them; and

12) The industry sticks together. There is an unspoken code in this field that you don’t call out a fellow investing advisor who is talking nonsense. The payoff of course is that no one calls you out either. The result for the investor is that he sees people talking what seems to be nonsense and no one calling them out and he concludes that he must be the one who doesn’t fully understand things. We don’t rely on our b.s. meters in the investing field because the normal rules of checking things out generally do not work.

Fama Missed One Critical Factor — The Desire of the Wall Street Con Men to Make a Bundle at the Expense of the Middle Class

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Set forth below is the text of a comment that I recently put to the Goon Central board:

do you have a parallel market that only you know about, where you can set the prices to whatever level Yes.The parallel market is the market that comes into existence on the day we open the internet to honestzzz posting on SWRs and many other critically important investment-related topics.

Buy-and-Hold is based on the research of University of Chicago Economics Professor Eugene Fama. He is the guy who theorized that the market is efficient (that the price is always set properly and that therefore there is no need for investors to engage in market timing). Fama is no dope. Where did he mess up? Why did he get it so wrong?

He wasn’t aware of the Ban on Honestzzz Posting.

The Ban on Honestzzz Posting is the only thing keeping the market from being efficient. Every investor wants to invest effectively. But to do so he needs to know how stock investing works. This is what the academic research of the past 30 years (combined with the research that came before) tells us. Once we lift the ban, we all will become effective investors and the market will indeed be efficient.

From that point forward, something close to a Buy-and-Hold strategy will work. Most investors will never need to change their stock allocations because valuationszzz will stabilize. Each time valuations get too high, a small number of investors will quickly sell and that will be enough to bring prices back to fair-value levels. Market prices are self-corrrecting so long as investors have available to them some means of learning what the academic research says. It is the Ban on Honestzz Posting that has rendered the market inefficient by making it impossible for investors to learn what the academic research says.

Once Bogle says The Three Magic Words, the Ban is no more and we are home-free.

Fama almost had it right. He missed one critical factor — the desire of the Wall Street Con Men to make a bundle at the expense of the middle-class. Once we open the internet to honestzzz posting, we all will learn what the research says and the Wall Street Con Men will no longer be able to peddle their mumbo jumbo. We all (including the Wall Street Con Men) will be a lot better off.

Rob

 

Juggling Dynamite Blog Links to My Article on the Threats Used to Intimidate Academic Researcher Wade Pfau Into Not Publishing Further Research on the Dangers of Buy-and-Hold Strategies

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The Juggling Dynamite blog recently liked to my article on the threats used to intimidate Academic Researcher Wade Pfau into not publishing further research on the dangers of Buy-and-Hold investing strategies.

Danielle Park wrote: “For all the many people who are still holding equities at present levels because their financial adviser insists that timing market cycles is impossible to do. Please awaken from your marketing-induced slumber and read this: Academic Researcher silenced by threats to get him fired from his job after showing dangers of buy-and hold investing strategies.

Juicy Excerpt: 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!

Coda — What Am I Going to Do Now That My Reporting on the Wade Pfau Saga Is Complete?

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I’m going to Disney World!

Well, not quite. I’m saving that for the day the Ban on Honest Posting comes to an end. But I’m doing something close. I’m going to Ocean City, New Jersey. We take off in a few minutes. I will not be approving comments to the blog during the time I am gone (sand and computers don’t mix, according to Old Farmer Hocus). But fear not, Goon friends! If you file your stupid comments — er, I mean your well-informed and helpful and much-appreciated comments — now, I will read them when I get back and get them quickly posted or (more likely) sent to the Trash Bin along with most of your smelly, yucky, anti-human comments– er, I mean well-informed and helpful and much-appreciated comments.

I will return to the computer on Friday, August 17, 2012, presuming that one of the Greaney Goons doesn’t shoot me down in cold blood while I am playing a round of miniature golf with my boys on the boardwalk.

I earned this one!

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 — Teaser Version. The purpose of the teaser version is to give me something to send to political bloggers who might not immediately see the political implications of the story and might be enticed by some of the hottest Wade Pfau comments into reading the version that provides more background and context and detail.

My best wishes to all my internet friends, both the Valuation-Informed Indexers and the Buy-and-Holders.

Stay the Course!

Rob Bennett to Academic Researcher Wade Pfau: “The Issue of Your Job Search Is NOT Entirely Private. It Goes to Motive… It Is of the Utmost Importance That We Make Clear to People WHY So Many Experts Fail to Speak Out Against Buy-and-Hold 30 Years After the Academic Research Showed That There Is Zero Chance That It Will Work for Any Long-Term Investor”

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Yesterday’s blog entry reported on an e-mail sent to me by Academic Researcher Wade Pfau on April 7, 2012. I sent a response within 20 minutes. The text is set forth below.

Wade:

I’m happy to use the entire text of the first e-mail, Wade.

Is it your preference that I run the entire text of your other e-mails?

Rob

Wade responded within 25 minutes. He said: “My preference is that you do not write about any of my emails!” He then identified the e-mail that he wanted me to run in full text. He said: “Beyond that email, I feel that my emails to you are meant to be private, and I don’t want them posted publicly. As long as you posted the entire above email first, please then just summarize any other emails I sent you without using quotes or excerpts. I wrote the first email under the assumption that you would post it publicly, but my other emails to you were written under the assumption they would be kept private. Also, please do not mention that I am looking for a job in the United States, as this is something I do not want my university to know. Some of these matters are very private!”

I responded the next day. The text of my response is set forth below.

Wade:

There obviously would be no good purpose served in reporting on matters that are entirely private.

The issue of your job search is NOT entirely private. It goes to motive. Most people have common sense and so most people understand that the price they pay for stocks must affect the value proposition they obtain from them. I have asked people why the general rule does not apply in the case of stocks. The answer I get is that “the experts say that is so and I presume that they know what they are talking about.” So it is of the utmost importance that we make clear to people WHY so many experts fail to speak out against Buy-and-Hold 30 years after the academic research showed that there is zero chance that it would work for any long-term investor.

The obvious (to those who have watched The Great SWR Debate) explanation is that the experts are AFRAID to express their honest views in public. It is  certainly not only you. You are in very good company. Bogle is afraid to speak in complete honesty. Bernstein is afraid to speak in complete honesty. Tressider is afraid to speak in complete honesty. Burns is afraid to speak in complete honesty. And on and on and on. (These are all great people who have provided many powerful insights — that should go without saying but I don’t think it hurts to say it often given the circumstances.)

This is the problem that has to be overcome. When this one is overcome, all our problems are over. We will not all be in agreement, nor should we be. But at that point all this ugliness will be behind us. We won’t be associated  with people who engage in death threats and defamation and board bannings and all this sort of thing. We will be free to do the work we all want to do and to feel good ourselves while doing it.

So THAT sort of thing I very much need to report on. That’s the thing no one else is doing. And it is because no one else is doing this important work that we are in an economic crisis today.

I offer this preface so that you understand where I am coming from. There is ZERO desire here to do anything to cause you any discomfort. I want to see you win the Nobel Prize. That will be one of the happiest days of my life. It is not going to happen until we get to a point where we are all posting in complete honesty and moving things forward at a good pace. I didn’t ask for the job of doing this important work. I was volunteered. I obviously have never been offered any other options. So I obviously just have to do what I have to do, even when it pains me to see that the situation as a whole has caused some pain for people whom I think of as good friends and good people.

I think it is probably possible to avoid mentioning your interest in a job in the United States. I can’t make a commitment at this moment because I haven’t given much thought yet to how these articles would be put together. But my first thought is that it would be okay for me to say something like “Wade mentioned a private matter that caused him to not want the articles to appear at this time.” I don’t at the moment see why people would need to know more than that. [Please see the note at the bottom of this blog entry re Wade’s blog post to understand why I ultimately decided that it was necessary to include Wade’s words re the job in the United States to tell this story in a complete manner.]

That’s not the case with the earlier threats by the Goons to get you fired from your job in Japan. Those threats appear to have played a big role in your move to the dark side. Those threats are already public. The Goons posted them at Greaney’s board for all the world to see. So that stuff is already public and serves as a powerful demonstration of the the power of the Goons to block the public’s ability to learn about very important matters.

One of my jobs is to bring lawsuits against the Goons and those who have permitted them to post at their sites and those who have failed to speak up when they posted at sites at which they post and thereby have lent credibility to the Goons. I think it would help to diminish people’s anger for us to see that there are prison sentences served by those who have posted in “defense” of the Goons on more than a small number of occasions.

A showing that the Goons made threats to get a respected researcher fired from his job for the “crime” of speaking honestly about a matter of great public policy significance and that the researcher did indeed feel intimidated by this threat is PRECISELY the thing we need to get before people to get the major political blogs writing about this story. I believe that this story is going to break as a political story rather than as an investing story because most of the owners of the investing blogs are too compromised by their desire to be on good terms with the hot shots in this field.

I am not going through all this to further inflame you. That’s the last thing in the world I want to do. I am going through all this in an effort to help you better understand how you have managed to get yourself entangled in some very, very dangerous and foul stuff. My personal belief is that your worry about the U.S. job is trivial compared to what is coming down the road. After the next crash, people are going to be very, very angry about what has been done to them and will be looking for people to hang from a tree. Anyone who has put forward words in “defense” of the Goons has set himself up for a world of pain at that time, in my assessment. I pray that my friends will soon catch on to this reality and cease engaging in further acts of self-destruction, Anyway, the purpose here is to help you understand the realities. If you are not capable of appreciating them today, I hope that perhaps you will reread this e-mail at some later date when you are in circumstances that help you come to a better appreciation of what is going on here.

I love you, man. I believe that my appreciation of your research is greater than your own (because I am in circumstances which permit me to see implications that follow from it that you are not able to let into your consciousness today). My hope and belief is that there will be a day when we are both on the other side of the Big Black Mountain of hate and anger and shame and guilt that separates us today and have a beer together and laugh together at the craziness that for a time caused us to think there was some significant difference in our self interests. I don’t think there is. I think we are very much on the same side, regardless of how things may appear to look on the surface..

If you have any further concerns or questions re what I will write  or what I have written, please always feel free to drop me a note. My aim is be FAIR both to my readers and to those I write about. I work that side of things very, very hard. I think about it and think about it and think about it. I lose sleep over it. So don’t ever think that I dismiss any request you make casually. Never do I do that. I obviously cannot promise to go along with every request. There are millions of people today who have lost jobs because of all this Buy-and-Hold garbage and I obviously need to worry about the career prospects of those people too. But I care about you and I will always remain open to spinning things in your favor to the extent that it is possible for me to do that in good conscience.

Hang in there. It is my strong sense that things are in the process of getting better. The Goons are feeling more and more desperate every day. Perhaps there will come a time in the not too distant future when all the ugly part of this will be behind us and we will have only the fun, fulfilling parts of the project to work together on. Let us pray!

Rob

This e-mail was my last communication with Wade.

Wade wrote a blog entry at his site making defamatory comments about me (while also making a number of legitimate points) on May 16, 2012:

http://arichlife.passionsaving.com/2012/05/17/wade-pfau-bennett-desperately-wants-someone-besides-him-to-say-that-the-trinity-study-needs-to-be-corrected-but-ive-explained-that-this-isnt-how-research-works/

He deleted the comment that I posted to that blog entry. I checked his site a few weeks later to see that he had deleted comments that I made to other blog entries at his site.