How to Build Wealth, Ignore Wall Street, and Get on With Your Life

While I appreciate the sentiment, we are most definately NOT in control of our own financial future, and that type of thinking creates a false sense of security.
Even the suggestions above put your fate into someone else’s hands: index funds, real estate, etc. All of those investments will be affected by external events outside of your control — index funds took the same type of beating that actively managed funds did.
Rather than preaching that we need to take control, one should have a sense of that things that are not in your control — stocks, real estate — and those that are — investing in your own skills/business, cash, bonds (I know, still risk of loss, but legal protections for your capital).
You can then decide a mix you’re comfortable with. Call it your “In Control” and “Out of My Control” portfolios. And then repeat the serenity prayer…

Bill,
Good article and well put together, but you do seem to be stuck in the rut of wall street investments.

The three pieces of advice is sound, whether you are considering an investment or advising your child about his or her future.

In your article you mention that”control of your financial future” and then unfortunately return to give advise about investing in the stock market. What happened to investing in your own skill sand potential business like Tim recommends?

I have consulted in 14 different countries that have gone through financial turmoil long before this current world wide crisis got to us and in most of the (developing and other) countries the individuals that really made a difference to their financial independence were the once that actually put their so called job security at risk and backed their own skills to increase their wealth.

It is true that there are also tales of failure here, but the percentage success of people seeking their wealth in areas where they were in control outstripped any other wealth building mechanism. most of the successful entrepreneurs started in areas where they have special skills. the ones who exploited their favorite hobby and converted that into a business were especially successful.

I am sure that investments in the stock market will continue to grow over the next decades, however there is a new bread of entrepreneurs in the world that is slowly but surely making a significant difference to their own wealth, and at the same time they are enjoying it.

I still have to meet one of these businessmen who is looking forward to retirement. In fact I spoke to one such guy just this morning. He lives in Western Australia (Perth), is 66 years old and plans to expand is business to Canada. That does not sound like a guy who is planning for retirement, and I have seen his balance sheet, financially speaking he can retire 100 times over but enjoys what is is doing to much to stop now.

I think this is a good post. However, I think it still has an overconfident attitude. Buy-and-hold investors *expect* to get, conservatively, a 6% annual return on average over the long run. Many expect 10%. Why? Because that’s how it’s always been. But that is a gross oversimplification. The marketplace changes wildly, especially with regard to regulation. Tomorrow the government could pass a new regulation that makes all historical data irrelevant to future returns. In fact, it may have already happened. You won’t know until you get the returns.

So to be so confident that “setting it and forgetting it” will build wealth is a little risky. There are a lot of ways you could lose money, especially when you factor in taxes and inflation.

While I applaud the cautionary tone of this post and the criticism of the exuberance of a few years ago, I think it stops short of rationality. I do not agree that investing in securities is the way to build wealth. I think that is the way to protect wealth from inflation. Meanwhile, the way to build wealth is through production of things of value, either your labor or another product/service.

It is sound advice, and I like the title, “The Coffee House Investor,” but so many books say this exact same thing that I wonder what inspired you to write it? It’s not a fresh or different take on investing or managing your finances. Not that it has to be – I guess you can’t hear this logic too many times. I mean no offense by this comment, as I’m sure it’s a fine book, but I am curious as to what inspired you to enter the PF/Investing book foray with this idea.

I like the author’s emphasis on self-sufficiency and steering away from Wall Street stocks as our financial salvation. I have empathy for people whose assets have largely disappeared in the downturn. But at the same time, the more grandiose our culture’s expectations of returns on investment have become, the more we set ourselves up for debacles like Exxon and more recently, Bernie Madoff’s scheme. It defies common sense and ethics to expect wealth without work (Gandhi’s insight, not mine). I explain this more here: http://www.diamondcutlife.org/ken-madoff-and-wealth-without-work/

Good advice and something that I can attest to.
My 401k (nearly 20 years) never dropped below my contribution levels. In fact at the bottom (if we’ve hit bottom) was still 50% above my (and employer match) contributions.
On the other hand, my actively managed fund has dropped below my investment. Although I only opened it a few years ago. In the last month it’s regained most of my investment back.
Lets just say that my fingers are crossed on my individual stock picks.

I like the part about ignoring Wall Street. Colluding with the media, they hardly have the common man’s interests at heart. Investors should take heed and seek out more independent money mangers that are less hype and more substance.

Buying stocks (or funds composed of them) is the *WORST* way to “ignore Wall Street”. There was a time, several years ago, when I didn’t own any stocks at all. I was free to ignore Wall Street completely. Stock market up or down? Who cares, doesn’t affect me, since I don’t own any stock. I never cared about anything that happened on wall street until I owned stocks, and now checking in on what Wall Street’s been up to is a daily occurrence for me.

And how awesome would it be to read about building wealth by actually *building wealth*, rather than buying a stake in someone else who’s trying to build wealth and hoping that they succeed and take you along for the ride? There’s noting wrong with investing in stocks. It’s an easy way to potentially make some money, and I wont fault anyone for that, but people are talking about it so often that an article or two on building wealth through hard work and good ideas would be refreshing.

My uncle built his own house — literally creating wealth from the ground up. My father started his own business and builds alarm systems, designing and building wealth in his workshop. A man I know built his own sailboat, turning a pile of wood into an object of value.

Buying stocks isn’t building wealth. It’s funding other people who are actually building wealth, and sharing in their profits.

I guess I’m just getting bored of reading about it: “diversify”, “buy index funds”, “hold for the long term”. Ok, fine, it’s not bad advice. But neither is “wash your hands after going to the bathroom” or “look both ways before crossing the street”, and at some point people figured they didn’t need to keep telling me those things over and over.

Rob has repeatedly been asked to define the system or to compare its returns to the Coffeehouse portfolio.

After responding to Bill Schultheis yesterday on this thread (see Bill’s Comment #20 and my comment #21), I sent him a follow-up e-mail making the case for why we need a national debate on the flaws in the Passive Investing model. Bill said that he had checked out my site after seeing my first post and that his reaction was: “Holy Toledo, this is great stuff!” He noted that there are many issues at play and said that he wanted to take a few days to think things through before responding at length. He thanked me for beginning the dialog. I of course said that that sounded great and that I too looked forward to further discussions.

An entire section of my site is devoted to describing the Valuation-Informed Indexing strategy. The short version is that this is an approach to indexing in which the investor changes his stock allocation in response to big price swings. A Valuation-Informed Indexer would have been going with a high stock allocation from 1975 through 1995 (because stock valuations were low or moderate). He would have been going with a low stock allocation from 1995 through the first part of 2008 (because valuations were insanely high). He would now be at a moderate stock allocation (valuations are fair but we are still working through the damage done to the market and the economy by the long time-period of insane prices).

Valuation-Informed Indexing always provides better risk-adjusted long-term returns than Passive Indexing. There is a calculator at my web site (“The Investor’s Scenario Surfer”) that you can use to check this out for yourself. The calculator lets an investor choose his stock allocation for each year of a 30-year return sequence (that is consistent with the returns sequences we have always seen in the historical record) and compare his results with what he would have seen had he followed a rebalancing strategy. Valuation-informed strategies leave you ahead about 90 percent of the time. I think it is fair to say that a strategy that puts you ahead only 10 percent of the time is a higher-risk strategy. So I think it is fair to say that Valuation-Informed Indexing always beats rebalancing on a risk-adjusted basis.

It is not hard to understand why. The valuation level that applies on the day you purchase an index is the price tag that applies for that purchase. Price matters with anything you buy, including stocks. To invest passively is to ignore price. If you do not change your stock allocation in response to big price swings, you are ignoring price in your stock investing decisions (rebalancing is a small effort to take price into consideration but not nearly sufficient considering the extent to which price has always affected long-term returns in the past). That cannot possibly be a good thing. The historical data shows that it is in fact a very bad thing.

I am trying to launch a national debate on these questions. It is my view that the heavy promotion and subsequent popularity of the idea that “timing never works” caused the economic crisis. The only brake on an out-of-control market is investor fear that there will be a price to be paid for investing heavily in stocks at times of insane prices. The widespread promotion of the Passive concept took away that fear. So we destroyed our market and our economy. We need to get about the business of rebuilding both. That means talking straight to middle-class investors about what we know today (which is a great deal more than what we knew at the time the Passive concept was developed) about the effect of valuations on long-term returns.

There is not one investor on Planet Earth who would be hurt by a civil and reasoned discussion of the realities. There is a mountain of evidence showing that valuations affect long-term returns and that, while short-term timing never works, long-term timing ALWAYS works. For people to understand these things, they need to be able to ask questions and explore the ideas from different angles. The first step to making that happen is overcoming the oppressive dogmatism that has come to characterize the Passive Investing mindset in recent years. The advocates of Passive Investing have made many wonderful contributions to our understanding of stock investing. But their blind and stubborn dogmatism on the “timing never works” claim has caused more human misery than any other mistake in the history of personal finance, in my assessment.

I am hopeful that Bill may be willing and able to help us get discussions of these matters on a better track than the one they have been traveling for the past seven years (these discussions began with a post that I put to a Motley Fool discussion board in May 2002). I am certainly grateful and encouraged that he has shown a willingness to at least explore the issues a bit with an open and fair-minded and friendly attitude. That’s what we need to see from all Passive Investing advocates to bring things to the place where we all deep in our hearts very much want things to go.

Challenging questions advance the learning process. Negative attitude holds back the learning process. We all should be pleased and excited about the idea of learning more about how stock investing works in the real world.

Rob

Hi Rob,

A little background on The Coffeehouse Investor: I spent 14 years working for a wirehouse brokerage firm, stepping away from it in 1998 to create The Coffeehouse Investor. My audience for the book were the folks I met for coffee every saturday morning at a local coffeehouse in Seattle. These are successful people, most had families, recognized that building wealth was much more than the size of a bank account, and yet wanted to invest their 401k’s, retirement plans, in an intelligent manner.

I felt there were thousands, probably millions of investors like them, who wanted clarity with their investment decisions.

So, with those types of folks as an audience, how do you suggest they build a portfolio using your valuation method? John Bogle uses a simple rule of thumb to equate your bond allocation to your age. For most investors that probably makes sense. How would you vary from that? Warren Buffett, in a recent newsletter said, “Beware of Geeks bearing formulas.” I think Buffett has sound advice for the vast majority of investors who want to do the right thing.

I recognize that the market swings from being overvalued to being undervalued. I have yet to see anyone who can consistently take advantage of that. The easiest thing in the world to do is look backward and find patterns/valuations that could have been extremely profitable had one acted on them. Doing so in the future is a much larger challenge, and, a slippery one at that.

I am not saying that a person shouldn’t tweak portfolios when valuations are extremely high or extremely low, based on their inclination and risk tolerance. But am curious what you suggest for the millions of investors who have 401k plans and want to do the right thing with their investments. Should they all follow your valuation model?

Someboday once said that the enemy of a good plan is a perfect plan, and I think it applies to investing as well.

Bill

Very interesting discussion. Rob Bennett’s valued informed index strategy is an updated version [using index mutual funds] of Benjamin Graham’s ideas as he wrote about 50 years ago [The Intelligent Investor]. You overweight stocks when they are relatively cheap and underweight them when they are expensive. It also combines what the trend followers insist is the only important factor, price, with the diversification of index funds. That advice is followed by Warren Buffett and many others sans the index funds. There is no doubt that this is sage advice as it has proven in the hands of experts to work very well. Rob said it very well here: “Passive Investing has failed. It needs to be replaced with something that satisfies the dictates of the common-sense observation that price matters when buying stocks just as it does when buying anything else.”

As to the Bill’s assertion that Buffett is an “advocate of indexing” he couldn’t be more wrong.
Indexing is all about diversification and here are a couple of quotes from Buffett about diversification:
“Wide diversification is only required when investors do not understand what they are doing” and “Risk can be greatly reduced by concentrating on only a few holdings.” And of course he is famous for concentrating his investments especially in the early years when that was possible for him.

I think this next quote is the most telling and provides with something real to think about:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

Finally, Bill mentioning that Bogle suggests index funds is laughable because that is exactly how Bogle makes his money, by selling index funds to the masses! Hardly a unbiased source!

The real problems come into play when you take a look at the very real large drawdowns in index fund returns that happen, on average, every 11 years and take upwards to 7 years to recover from. This makes the timing of turning your index funds into income production for retirement very, very risky and really totally dependent upon luck.

There is, of course, much to love about the apparent simplification of index funds investing, its just that life [and the market] are never that simple!

Response to Post #26

“with those types of folks as an audience, how do you suggest they build a portfolio using your valuation method? John Bogle uses a simple rule of thumb to equate your bond allocation to your age. For most investors that probably makes sense. How would you vary from that?”

Bogle recommends that investors change their stock allocations in response to three factors: (1) life goals; (2) financial circumstances; and (3) risk tolerance. Bogle says that someone near retirement should go with a stock allocation different from what he would go with when he was not near retirement because his life goals are different (the investor near retirement is not in a position where he should be putting as much of his life savings at risk). He also says that financial circumstances should be considered. The investor who has already saved far more than what he needs for retirement might elect not to put too much of that money at risk in stocks. Finally, Bogle says that risk tolerance should be considered. Some investors are less able emotionally to accept losses. Those people should not be going with the same stock allocations as those who do not get as upset to experience losses.

I add a fourth factor. I say that investors should also consider the added riskiness of stocks that comes into play when prices are at insanely dangerous levels. The added risk that comes with sky-high valuations is certainly as big a factor as the three that Bogle takes into consideration. Why should the less important factors be considered and the most important one be ignored?

Valuation-Informed Indexing need not be complicated at all. It is entirely suitable for investors seeking a simple approach

A simple rule would be to go with a stock allocation of 90 percent when prices are amazingly low and the long-term value proposition is mouth-wateringly high (a P/E10 level below 12), a stock allocation of 60 percent when prices are in a moderate range and the long-term value proposition is strong (a P/E10 level from 12 to 21) and a stock allocation of 30 percent when the long-term value proposition is poor (a P/E10 level above 21). There is no need for Valuation-Informed Indexers to make more than one allocation shift every eight or ten years on average. There is no need to check the P/E10 level more than once per year. And, if the experts made it a practice to let indexers know when stock prices had gotten so high that the danger of investing in stocks had grown great, investors would hardly need to check the numbers on their own at all. They could just act on the warnings given by the experts (Bogle has delivered such warnings on several occasions — unfortunately, he has not specifically told indexers what action to take in response to the warning; investors need to be told in clear and firm terms that they need to lower their stock allocations until prices return to reasonable levels).

“The easiest thing in the world to do is look backward and find patterns/valuations that could have been extremely profitable had one acted on them. Doing so in the future is a much larger challenge, and, a slippery one at that.”

There is no need to look for “patterns,” Bill. We know that the risk/reward ratio for stocks is far less appealing when prices are high. That’s all we need to know to know that the same stock allocation that made sense when prices were low cannot possibly also make sense when prices are high. Investors should be setting their stock allocation with the goal of taking on the proper amount of risk. Big valuation shifts change the risk level. So allocation changes are mandatory for those seeking to “Stay the Course” in a meaningful sense (that is, to keep the risk level taken on roughly constant).

The Stock-Return Predictor (a calculator at my site) provides the information needed to set one’s stock allocation properly. The calculator says nothing about what sort of return pattern is likely to pop up. It tells the investor the range of possible returns that apply at the different valuation levels. Knowing the range, the investor knows roughly what his stock allocation should be. He doesn’t know with precision what return he will obtain. But he knows what he needs to know to keep his risk level roughly constant.

The investor who fails to change his stock allocation knows with certainty that he was taking on the wrong level of risk either at the time when valuations were high or at the time when valuations were low. How could deliberately following a policy insured to produce the wrong stock allocation at some times possibly be the right way to go? It is better to get things roughly right than to be certain of at times getting them dangerously wrong. Leaving your stock allocation at the same level when prices have climbed to sky-high levels is not a neutral choice. It is a reckless choice. Millions of middle-class Americans have lost a large portion of their life savings because of this highly unfortunate Passive Investing recommendation.

“I am not saying that a person shouldn’t tweak portfolios when valuations are extremely high or extremely low, based on their inclination and risk tolerance.”

Tweaking doesn’t do the job, Bill. At the top of the bubble, the historical data shows that the most likely long-term return on stocks was a negative number. Many Passive Investors were going with stock allocations of 60 percent or 70 percent or even 80 percent at the time. The proper stock allocation for the vast majority was more in the neighborhood of 20 percent or perhaps 30 percent. Going from 60 percent to 20 percent is not tweaking. We need to advocate something more dramatic than tweaking.

“Should they all follow your valuation model?”

I believe that all indexers should follow a Valuation-Informed Indexing strategy rather than a Passive strategy. I provide the four calculators at my site as tools to guide investors seeking to make effective valuation-informed choices. But I don’t think that it is at all healthy for people to be looking to only one person for guidance on these questions. I am a flawed human too with my own set of prejudices and biases. I would like to see hundreds of web sites offer access to hundreds of tools aimed at helping investors make effective valuation-informed choices. The more who are involved in giving guidance in this area, the better the guidance provided will be. I’d like to hear you offer recommendations in this area, Bill. And I’d like to hear Bogle do the same. And Bernstein. And Swedroe. And Mel Lindauer. And on and on. The more who get involved, the better, in my assessment.

“Somebody once said that the enemy of a good plan is a perfect plan, and I think it applies to investing as well.”

The failure to tell people of the need to take valuations into consideration when setting their stock allocations is not a minor imperfection in the Passive Indexing approach, in my view. It is a huge flaw. The analytical errors in the Old School safe-withdrawal rate studies alone are likely to cause millions of busted retirements. I believe that this mistake is big enough to bring on the collapse of The Indexing Revolution if it is not fixed. I believe that it is imperative that a national debate be launched in which the errors in the first draft of the Passive model will be explored in depth and as a result of which the most damaging errors will be fixed. It does no one any good for the process to be delayed or stretched out. The errors are serious. We need to acknowledge them, fix them, and get that part of this business behind us. Once there is a consensus that the errors need to be fixed, we are looking at smooth sledding all the way home. Indexing is wonderful when done right. The problem has been a reluctance on the part of many who have advocated the Passive model to be forthcoming about the extent of the problem they have inadvertently created by jumping to hasty conclusions and then by becoming unwillingly to embrace findings at odds with the findings responsible for the earlier thinking re these matters.

Rob

First, my thanks to J.D. for going to a lot of trouble in getting my last two comments on this thread to appear here. There was a technical mix-up that probably resulted from the site redesign and I was not able to get the comments to appear for some time. I believe that the issues being discussed in this thread are of great importance and I am grateful both to J.D. for hosting the guest blog entry and to Bill for writing it and for offering some fine comments. I have been in e-mail communication with both J.D. and Bill in an effort to bring about wider and more in-depth discussion of the issues explored here both at this blog and at lots of other places on the internet. So I was concerned that I was not able to get two of my comments to appear. It took a lot of patience on J.D.’s part to get things straightened out (I believe that the only thing that worked was him typing the comments in himself — I believe that I may have caused a formatting problem in my copy by storing them in an AppleWorks file after I first had a problem getting them to appear). Neither J.D. nor Bill agree with me on the investing issues being discussed. But both have helped me get these ideas before more people. I am grateful.

Lindsay’s comment links to a discussion we are having at the Four Pillars blog about my strategy of writing exclusively about the Valuation-Informed Indexing strategy at my blog (“A Rich Life”). This is in great contrast to the usual strategy of writing about a great variety of topics. This isn’t the place to discuss the merits of the strategy. But there is an investing point implicit in the strategy that I believe is worth highlighting.

What does it mean when I say that “Valuations Matter”?

It means that Emotions Matter.

It is emotions that cause both overvaluation and undervaluation. In an efficient market (a belief in an efficient market is core to the Passive Investing project), overvaluation and undervaluation are both impossible. Why? Because, an efficient market is a rational market (how else could prices be set properly but through rational acts by market participants?). In a rational market, prices always self-adjust. In a rational market, overvaluation causes investors to go to lower stock allocations and lower stock allocations bring prices back to reasonable levels. The very fact that we went to such insane price levels in the 1990s shows that the market is not efficient and that Passive Investing cannot work in the long term.

If we were rational, we would all accept this. If we were rational, there would be no books or calculators or studies arguing otherwise. The trouble is — we are not entirely rational creatures. We are to a large extent emotional creatures. Our emotions cause us to want to invest heavily in stocks at times when the price is high and the long-term value proposition is low. So there is a great demand during out-of-control bulls for books and calculators and studies showing that Passive Investing (sticking to a single stock allocation despite wild price changes) can work. These materials are not the product of human reason. They are the product of human emotion.

But –

Emotions change. When we get to a time-period when Passive Investing provides horrible results for many years in a row, investors become more interested in hearing the realities. We may be in the early years of a shift from Passive (emotional) beliefs about stock investing to Rational (valuation-informed) beliefs about stock investing. If that’s so, then my strategy of focusing my blog on deep examination of the Valuation-Informed Indexing may indeed pay off big time.

The investing point?

Don’t assume that the things you hear about investing at a time of out-of-control prices are the product of the best thinking on the subject. If valuations matter (and there are many who say they do), you need to discount all that you hear about investing to take account of the valuation level that applies at the time. We were hearing during the years of insane prices that insane prices don’t matter that much because prices were so insane. Investing analysis is a closed system of thought. You can only get outside of it and see things objectively by making adjustments to what you hear based on the level of emotion pervading the market at the time. And you learn about what level of emotion applies by looking at the valuation level that applies.

Rob

“Nor do I say that it’s impossible to provide data or make comparisons”

Great, so you’re going to get around to answering the question at some point? It’s come up several times again at your forum. We’re all waiting.

eg:

http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1241703133/20#20

http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1242315333/37#37

“…anyone can cherry pick some years and make a comparison look valid [17 years???]. And anyone can pretend to not understand the point. The S & P 500 is regularly used as an sample index and as such is perfectly fine to use in an comparison.”

Seventeen years because Bill Schultheis posts the annual returns for the Coffeehouse Portfolio dating back to its creation in 1991, 17 years. Yes, the S&P 500 is regulary used as a sample index. All the more reason for Rob to show a comparison of the returns for his strategy versus the S&P 500 and/or the S&P 500 in combination with bonds, say 60/40 for past periods of time.

Rob claims his S&P timing system is superior to all passive strategies. Here’s his chance to show how the returns compare for the same period versus a diversified passive strategy, the Coffeehouse Portfolio since its creation in 1991. And how his strategy would have performed against a mix of S&P 500 Index and bonds over the past. Preferably in a simple two column format.

Again, Rob is peddling an alternative system. He should be taking every opportunity to show the superiority of his timing system, not hiding behind a wall of words claiming his method is superior to other strategies but showing no evidence.

Lyndon

The obvious question to this late comer to the cat-fight is why the anger? name calling? etc. on both sides.

I hope that you are not trying to suggest that there has ever been even an iota of anger or name-calling from the 80 percent of the Retire Early and Indexing discussion-board communities that have on repeated occasions expressed a desire that honest posting on these matters be permitted at those boards. I can assure you that that is not the case. 100 percent of the anger and name-calling has come from the Passives and the defenders of the Old School SWR studies.

I certainly do not say that all Passives engage in such tactics or favor such tactics. That is certainly not even close to being the case. My sense is that the vast majority of Passives are repulsed by them, as are the vast majority of Rationals.

The problem is that most Passives have been reluctant to speak out against the use of the tactics employed by the small percentage of Goon posters that congregate at the boards. Every board at which I have posted has rules in place to protect the communities from these sorts of tactics. At every board, the site owner has failed to enforce the rules in a reasonable way and has banned effective questioning of the Passive concept (presumably because the Passive model is the dominant model today and thus the more popular model for the time-being) rather than the abusive posting employed to block the discussions from going forward.

If these tactics were being employed by Rationals, I would be deeply ashamed. I would want to disassociate myself from these tactics in every way possible. I have long argued that what we need to see for the discussions to become more fruitful is for a few leading Passive Investing advocates to speak out in strong and firm terms in opposition to the Goon posting tactics. Most Passives are good and smart people and add a great deal to the discussions; we cannot hold effective discussions without the strong questioning that only smart Passives can add to the mix. But the responsible Passives must disassociate themselves from the Goon element for the discussions to achieve their potential.

Most ordinary investors are unwilling to participate in discussions as ugly as what these discussions become when the rules that apply at all of our boards are not enforced in a reasonable manner. When we lose the participation of all ordinary investors, the Goons assume dominance and the tone of the discussions changes dramatically. Having responsible Passives step forward and insist (not ask!) that reasonable posting rules be enforced in a reasonable way is the key to making this all work for the 80 percent seeking to learn more about how stock investing works in the real world.

I assure you that there is no one who has spoken out in opposition to the ugliness as often as I have or in as strong language as I have. This has been so dating all the way back to the afternoon of May 13, 2002, the first day of the discussions. I hate trash posting. It makes us all dumber and meaner and smaller instead of smarter and richer and more loving.

Rob

I was reacting to the posts on the links from Lindsay.
As to Mr. Bennett’s thesis, I find it impossible to understand why it is so controversial. I defy you to find any great investor [with a public record] that says that price doesn’t matter. Additionally, you might ask anyone that has retired in the last 5 years or has plans to retire in the next 10 based on their investing how the buy and holding of mutual funds has gone for them [including those that used asset allocation strategies]!

Check out the real data for mutual fund investors to see the real world results of this strategy!

“That is of course Mr. Bennett’s point.”

No.

“The obvious question to this late comer to the cat-fight is why the anger? name calling? etc. on both sides.”

THAT’S Mr. Bennett’s actual point!

That’s how passive-aggressive trolling works. There’s always some newbie like Dave who jumps into the middle of a long running feud and thinks that it’s the passive-aggressive troll who needs defending. That’s what makes it fun to watch.

Just don’t get sucked in!

“Additionally, you might ask anyone that has retired in the last 5 years or has plans to retire in the next 10 based on their investing how the buy and holding of mutual funds has gone for them [including those that used asset allocation strategies]!”

As you can see from the Coffeehouse Portfolio returns, an investor with that or similiarly diversified asset allocation portfolio has fared pretty well despite the vagaries of the market. And the sky has not fallen upon a prospective or current retiree with such a portfolio, especially if he or she has an appropriate allocation of bonds commensurate with their age. No investment strategy which includes stocks looks very good when viewed at the botoom of a market downturn. Both Rob’s S&P 500 timing strategy and any portfolio including stocks is counting on stocks appreciating over the the long term. And of course price matters. Rob thinks he can use PE10 to predict when to make buys and sells. Passive strategies use rebalancing to accomplish much the same thing. Rob believes his calculators prove his position is correct that timing the S&P 500 is the only rational way to invest; I disagree.

I must congratulate you, Mr. Shafer. From your web site I see your scam is much more honest and upfront than Rob’s. You seek money up front before you divulge your investment strategy. Rob trolls every personal finance discussion boards and blog he can find in his quest to gain fame and fortune promoting his nebulous investing scheme.

You two have fun in your respective endeavors!

Lyndon

@Lyndon, seems you proved my point for me.

Ever read a book called “True Believer” by Eric Hoffer?
You might find it interesting……

@Carlyle, yes the strategy was first outlined by Ben Graham, Buffett’s mentor. But he suggested using it along the lines of what Mr. Bennett suggests. I don’t think that the coffee house portfolio and Mr. Bennet’s value-informed indexing is that far apart, which of course is the ironic thing looking at all the animosity generated.

Personally, I have found success investing along the lines of Buffett thoughts and hitching a ride on his company. But, of course that is not for everyone.
I’ll leave it for the true believers to attack me for that one!

Have a great weekend, happy investing!

J.D. I noticed that you’ve had a run in with Rob on his blog. One thing you’ll soon learn if you haven’t already is that Rob doesn’t run an open blog. If you agree with him, praise him, or state a question in a way that he thinks is weak enough to totally refute, then your post will appear. Otherwise, not a chance. But if any blogger treats Rob the same way Rob treats his readers, he’ll complain about it like crazy and claim that that blog is a “corrupt enterprise”, has “banned honest posting”. etc. I see he’s already mentioned death threats over there. The reason he doesn’t provide a link to those is because he made them. Without a link you might ASSume it was the other way around.

Bennett said: “There’s an article at the “Banned at Motley Fool!” section of the site that provides the background re the death threats.”

It also illustrates that there WERE not death threats to you. None.

However, the historical record does show death threats were authored BY you. Do you deny these two obvious facts?

I think it is important to know if the person who is allowed to expend so many column inches here is truthful or not. For instance, while he constantly insists Finance experts should “apologize” for some imaginary transgressions which only Bennett knows of, did you notice that Bennett completely failed to apologize (say three little words “I am sorry”) to J.D. over his ridiculous and ultimately incorrect tirade, that Bennett now admits belatedly was in error? No apology.

He claims *others* have made death threats, but is unable to provide evidence. Yet, evidence of his own death threats to innocent children is easily found on Google.

Bennett is simply not to be believed or trusted.

Read his own blog, and you will quickly see the signs of a disturbed mind; a man who needs mental help.

I wish he would seek it out.