How to Build Wealth, Ignore Wall Street, and Get on With Your Life
What a difference a decade makes.
Ten years ago everyone was chasing the next hot stock. Equity markets were generating double-digit annual returns and dot-com companies were doubling overnight. Greed was widespread in the psyche of investors and no one wanted to miss out on the next sure thing: a social epidemic of excitement running rampant.
Everyone was getting rich.
Quickly.
Or so it seemed.
Fast-forward to today and everyone is running for cover. The country is mired in a deep recession and major stock market indices have declined over 40 percent from their highs. Fear has set in with investors of all ages. Our country is now struggling with a social epidemic of pessimism as investors cope with how to build back portfolios that have been sliced in half.
With one eye on the grim economic headlines and the other on a depleted portfolio, there is a tendency to think that everything is out of your control, and, unfortunately, that is when financial paralysis sets in.
Why is this so important now? I am not saying this is an opportunity of a lifetime, but because of the significant declines in the stock market, current valuations suggest that the next decade, and beyond, are likely to generate attractive returns in common stocks. Don’t let this next decade pass you by.
In my book, The New Coffeehouse Investor, first introduced in 1999 and now in its third edition, I share three simple principles to guide you in building wealth. These are principles you already know to be true and in your control.
1. Save for a rainy day
Establishing your own personal financial plan is paramount to building long-term wealth. In doing so, you create an awareness of whether or not your current saving and spending levels translate into achievable financial goals down the road. If not, what changes need to be made?
You might not be able to make enough adjustments immediately to reach your savings goal, but at least you have created an awareness of the gap between today’s current saving and spending levels and your future expectations. Then, when saving and spending choices come up in the future, this financial awareness is at least present at your decision-making table.
2. Don’t put all your eggs in one basket
The key to building a successful portfolio and reaching your financial goals is to diversify your assets in such a way that you maximize your chances of achieving your goals with a minimum amount of risk. The personal financial plan you have created for yourself brings clarity to your saving and spending issues. It also allows you to determine how to best allocate your investments between stocks, bonds, real estate and other asset classes to achieve a required rate of return based on a level of risk that is appropriate for you in relation to your goals and where you are in your life.
3. There is no such thing as a free lunch
Because markets are relatively efficient, any attempt at beating the market through the selection of individual stocks or actively managed mutual funds is likely to prove disastrous to your long-term financial health.
The smartest way to build a globally diversified portfolio is through a line-up of low-cost index funds. This investing strategy is at the core of Coffeehouse Investor portfolios. Wall Street will forever tout its stock-picking prowess. Don’t let them gamble with your money. Low-cost index funds are the surest way to capture the entire return in any asset class over the long haul.
The benefits of embracing these three principles are straightforward. First, from an investing standpoint, you maximize your return potential in each asset class by capturing its entire return. Second, and more important, it allows you the emotional freedom to turn your attention away from Wall Street and focus on the one component of wealth that matters most of all: How much you save and spend.
The financial media is quick to remind us that we are a nation of irresponsible, overspending consumers, living for today at the expense of saving for tomorrow. Along with the woeful tales of those who spend too much is another story that needs to be told: that of millions of Americans who do want to take responsibility for their saving and investing decisions by making the right choices today.
The problem is that we have been so inundated by the financial industry’s marketing machine over the past quarter-century, that we have been brainwashed into thinking that the secret to our long-term financial well-being lies in Wall Street’s hands, instead of our own hands. Nothing could be further from the truth.
For Coffeehouse Investors, our three simple principles allow us to be in charge of our own financial future. We wouldn’t have it any other way.
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There are 235 comments to "How to Build Wealth, Ignore Wall Street, and Get on With Your Life".
Sounds like rational, uncomplicated advice. It’s so easy to get caught up in the hype; I prefer a simple, less emotional approach like this one.
Thanks for the post, Bill.
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…
Long-term, buy & hold, index fund investing: There’s a reason it’s practiced by just about every unbiased observer of the financial markets. 🙂
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.
Good post. It’s advice that’s been repeated a thousand times…probably because it’s right.
@Tim — You’re right that broad trends in asset classes might be out of your control. But you can control your savings rate. Taking how much you save from 10% to 15% or 20% makes up for peculiar performances in the market. I think you’re basically saying the same thing with your “In Control” portfolio.
So much money is in the hands of professional money managers, that if you put every actively managed mutual fund together, they would about perform the same as an index fund, except for the increased fee taken out. So by picking an index fund with a low fee, you have a slightly more than 50% chance of beating actively managed funds over a long period of time.
I don’t think it’s because markets are efficient. I think it’s probably because managers are under tremendous pressure to make shortterm gains over longterm investments that might not pay off for years. They can’t always just invest for the longterm, because if their investments underperform while they wait for their companies to be recognized by the rest of the market, they might lose their jobs.
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.
Well, I did all the right stuff as did my parents. And we still lost 40% on our index investments. This may turn out OK for me, but my mother is in her late 70s. As many have said, there was no safe haven in the recent downturn.
So hopefully all the “common wisdom” will turn out to be right…but who knows?
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.
It is this sort of article that is the true “marketing machine,” in my assessment.
The market is not “nearly efficient.” It is wildly inefficient. At the top of the out-of-control bull, stocks were selling at three times fair value. A regression analysis showed that the most likely 10-year return from the purchase of a broad U.S. index fund was a negative number. An efficient market would never permit stock prices to rise so high that the long-term return became a negative number.
And the problem did not come about because most of us were trying to pick “hot stocks.” The “experts” have been pushing Passive Investing down our throats for three decades now and most of us bought in. That’s the problem.
It makes no sense to stick at the same stock allocation when prices go to the insane levels where they were from 1995 through 2008. The “experts” should have been warning us about what happens when we ignore this common-sense investing wisdom.
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.
Rob
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/
“The key to building a successful portfolio and reaching your financial goals is to diversify your assets in such a way that you maximize your chances of achieving your goals with a minimum amount of risk.”
‘Nuff said.. How you get there is a whole other subject. Life is about risks. Some risks you can control somewhat and some you can’t control at all. I will NEVER buy another individual stock without being hedged.. THAT is controlling risk..
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.
Great post. I wish I would have started out using index funds when I began investing in 1995. Going forward, I try to use index funds almost exclusively. But sometimes the allure of the single stock gets to me…
A few comments. . .
For 8 years following the release of the first book, I wrote a weekly column for a local paper, posted on my web site as well – 384 in all. I consistently reminded investors that before you blindly invest in the stock market, determine whether or not you need to invest in the stock market and take on the additional risk. I know countless people who live a successful life, are successful investors, who don’t have anything in the stock market, everything in CDs and municipal bonds. That is my goal when I retire (though I love my work and never plan to retire.)
IF you do decide to commit money to the stock market, the most efficient way to invest in the stock market to maximize your return potential is through low cost index funds.
For those who suggest that the best way to build lasting wealth is through your own entrepreneurship, I couldn’t agree more. That is why I wrote the book. So that you can turn your attention away from the stock market and daily ups and downs of Wall Street and focus on your own passions, your own dreams, your own gifts to make this a better world. That is ultimately what gives us life and energy. In the recently released third edition, I write an entire chapter on this topic.
For investors who are getting close to retirement and have lost 40 percent or more in last year’s bear market, I feel for them, and is another reason why I wrote the book, trying to explain the importance of asset allocation, the second Coffeehouse principle. Using Vanguard founder John Bogle’s rule of thumb, matching your fixed income allocation to your age means that a 60-65 year old investor would be down 10-15 percent total in the recent bear market. Not fun, but hardly a devastating financial experience.
Rob Bennett, thanks for your comments, I will respond later today, as you bring up some very interesting points, and will share my thoughts.
I also reviewed this book, nice advice he gives
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.
Only one minor quibble here Bill from me. The efficient market hypothesis is bunk, practically. Markets are loosely efficient, but they hardly are efficient. There is literature about “positivity premiums and panicked bargains”, something I exploited quite well a few months ago. The problem I see is that the finance guys took some very basic economics courses, but failed to understand how much economic models depend on underlying assumptions, and how wrong those underlying assumptions can be.
After maxing out investing in index funds, choosing other asset classes, including individual companies, or bonds, REIT, commodities, etc, is based on solid economic principles (a whole thing about asset covariance and such).
Just really, must quibble that markets are NOT efficient. That is a good reason to just buy the index, because if its not efficient, its not exactly rational, so good rational insight may not help.
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.
This is ridiculous. There is a lot of potential on the stock market now, even during recession.
Tim: have got to disagree with you on your comment that we are not in control of our financial future. For those who choose to be in control, they are in control. It all boils down to saving more than you spend. I have worked with literally thousands of investors in my 27 years in the business, and those who have a firm handle on their spending and saving issues are most definitely in control of their financial future. That is what the Coffeehouse Investor is all about. Ignore the things you can’t control and focus on the things you can. You comment “invest in your own skills/business.” That is the underlying theme of the book! Ignore the daily ups and downs of Wall Street and focus on your dreams and passions. With that said, I do feel that an investment in the stock market is an appropriate investment for the vast majority of investors who have a long term time horizon with a portion of their money. If one does choose to invest in the stock market, then low cost index funds are the obvious solution.
Carl Marx: I couldn’t agree with you more — that investing in one’s own skill and potential is the best investment there is. I see it every day in my own life, and with the folks I work with. The subtitle of my book is “How to build wealth, ignore Wall Street and Get On with your Life.” Because I am such a strong proponent of low cost index funds if one “chooses” to invest in the stock market, some folks mistakenly think that the subtitle of the book is “How to build wealth solely by investing in the stock market, ignore Wall Street, and get on with your life.”
IndepdentOperator: Great comments, great insights. Many people have unrealistic expectations of the stock market, especially when the valuations of the market are high and expected returns are low. I have never been an advocate of “set it and forget it.” I am constantly encouraging investors to review financial game plan at least once a year and adjust allocation based on need and ability to take risk. You comment “I do not agree that investing in securities is the way to build wealth.” I agree with you. But it can be one component of building long term financial and emotional wealth if done in the right way.
Todd: The first edition came out 10 years ago, and while the three principles can be viewed as “stale,” they can also be viewed as timeless. The fact is that millions of investors need to be reminded of the three simple principles, again and again and again to keep them from following the Motley Fools and Jim Cramers of the world. As someone once commented to me, repetition doesn’t just work in rock ‘n roll.
Rob Bennett: There is a big disagreement on the meaning of “efficient markets” in the academic and financial world. “Efficient Markets” means that few investors can consistently beat a benchmark average over time. It does not mean that no one will ever beat it, but predicting who can beat it in advance is a loser’s game and very destructive towards one’s ultimate goal. I agree with you that markets can be highly irrational at times, but even then, they are still relatively efficient at processing information.
You comment “Experts have been pushing Passive Investing down our throats for three decades now and most of us bought in.” Have got to strongly disagree with you on this one. Even though people like Warren Buffett and John Bogle are strong advocates of indexing, the majority of the financial industry still promotes active management. Statistics bear this out. Less than 20 percent of all dollars invested in the stock market on the retail side are in index funds.
I agree with you that prices matter in regards to future returns on equities. How do you suggest one integrates that into a portfolio? I am very familiar with the studies that recognize that valuations matter. Using that information to build portfolios and allocate assets is a challenge, and a slippery one at that.
Alison Wiley: Thanks so much for your comments. I agree with you, society has gotten carried away with expectations on investment returns, and it has set us up for debacles. I devote an entire chapter to that in the third edition of the book. That is why index funds make so much sense if one chooses to invest in the stock market, because it puts the pursuit of performance in perspective.
I agree with you that prices matter in regards to future returns on equities. How do you suggest one integrates that into a portfolio?
I’m grateful for your response, Bill.
The key is understanding the difference between short-term timing (changing your stock allocation with the expectation of seeing a benefit within a year or two) and long-term timing (changing your stock allocation with the understanding that you may not see a benefit for five years or possibly even ten years). Short-term timing never works. Long-term timing always works. We should be encouraging people to engage in long-term timing as often as we discourage them from engaging in short-term timing. The investor who fails to engage in long-term timing is thereby permitting his risk level to get wildly out of whack from what he had intended it to be when he set his allocation (because the riskiness of stocks is far greater at high valuation levels).
The way to integrate this critically important reality into a portfolio construction strategy is to accept that to “Stay the Course” meaningfully one must keep one’s risk level roughly constant. An investor who stays at the same stock allocation when the risk of owning stocks has increased dramatically is NOT staying the course in a meaningful sense. He is staying the allocation. That’s not at all the same thing.
Indexing is not the problem. Indexing is fantastic. The problem with Passive Investing is the passive part. The problem is the idea that “timing doesn’t work,” that there is no need to change one’s stock allocation in response to big price changes. The data shows that timing always works (and is in fact required for long-term success) as much as it shows that timing never works. It depends on what form of timing you are talking about. Short-term timing never works, long-term timing always works (and is required for long-term success). It is the idea that “timing doesn’t work” (which investors interpret as meaning that ALL forms of timing do not work) which has caused all the trouble.
Here is an article at my site entitled “Market Timing – What Works and What Doesn’t” that sets forth the implementation basics:
http://www.passionsaving.com/market-timing.html
You also might want to check out The Stock-Return Predictor. This calculator uses a regression analysis of the historical data to reveal the most likely 10-year return starting from different valuation levels and thereby to reveal how the long-term value proposition of stocks changes dramatically with big changes in price.
http://www.passionsaving.com/stock-valuation.html
I’d love to get a dialog started with you about these issues. I believe that we need to launch a national debate on the flaws in the Passive Investing model (which would of course also affirm the many wonderful things about this model) and you are obviously in a position to help get something like that off the ground. I’ll send a follow-up e-mail suggesting some possibilities for taking this to the next step.
Rob
One of the biggest problems with investing is our emotions. In the last decade many people were lead by their emotions instead of common sense. Wall Street knows this very well and they are working hard to control our emotions.
Markets are down and there is a potential for growth and return, if you do it right. Find a financial advisor who knows what she/he is doing. One of the mistakes financial planners and advisors made in the last couple of years is not taking the time to know their clients well. Just because the market was great that does not change a person risk taking approach. Often when investors are saying that they are OK with risk they do NOT mean that they are ok to loose 20-30% of their investments. I can see in my experience that those who took the time and made the right investment choice they lost less. Do not make emotional investment choices.
Hi Bill,
For years Rob Bennett has been promoting an investing system called Valuation Informed Indexing. He has a name and marketing slogans like “the human mind cannot imagine a better system” but what he doesn’t have is a definition of what it actually is. For many years now, he has been appearing on forums and blogs and claiming that he is ahead of the market regardless of how the market has performed.
Rob has repeatedly been asked to define the system or to compare its returns to the Coffeehouse portfolio. Here are a few recent examples of requests for comparisons to Coffeehouse:
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1241871189/30#30
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1240494169/26#26
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1240879140/28#28
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1240790444/39#39
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1242134244/8#8
As you can see, Rob is a very frequent poster at that forum (user ID hocus2009), but these requests are met with silence. I wish you luck at getting a testable definition of Rob’s system.
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
Did you notice that in all that typing, Rob still didn’t answer the question? So did I.
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
Bill,
As you conclude your post, the advice is to steer away from Wall Street marketing gurus. A few years ago they were able to bamboozle pretty knowledgeable financial people into buying subprime mortgages on the secondary market and look at the results. A disaster. Your three points are a solid foundation. Learn the basics of investing and do it yourself.
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 #25
“Did you notice that in all that typing, Rob still didn’t answer the question? ”
What Lindsay wants me to do cannot be done.
By “define the system” Lindsay means “tell me what stock allocation I should be at when stocks are at the various P/E10 levels.”
There is no responsible answer that I can give to that question. It depends on the particular investor’s life goals, financial circumstances and risk tolerance. There is no one-size-fits-all answer.
What would John Bogle say if you said to him: “We want to test your ‘system,’ tell us what stock allocation all investors should go with?” He could answer in a general way. He could say that stocks offer a strong enough value proposition that most should be going with a stock allocation of 50 percent or more. But he would have to include caveats if he wanted to respond responsibly. He would have to note that for some the proper allocation might be a bit less than 50 percent and for others the proper allocation might be a good bit more than that.
It’s the same with Valuation-Informed Indexing. I can say that investors should always lower their stock allocations when prices rise to dangerous levels. And I can say that investors should always increase their stock allocations when prices drop to levels where the long-term return is absolutely mouth-watering. But I cannot give one stock allocation that should apply for each P/E10 level. It would not be responsible to do so and it would not be correct to do so and it helps no one for me to pretend otherwise.
It always makes sense to consider price when buying anything you buy, including stocks. That much I can say with certainty. There are a multitude of strategies by which this critically important reality of investing can be implemented in a portfolio strategy. All investors should be discussing the various possibilities on a daily basis. That’s how we refine and develop our knowledge of what works. The problem today is that a good number of Passive Investing advocates have ruled such discussions out of bounds on grounds that to even discuss the merits of different strategies suggests that it is not right to say that “timing never works.”
They’re right about that. The Passive Investing dogmatists want us to give up what we can learn from discussion of the many possible valuation-informed strategies to protect the dogma that “timing never works.” I want us to give up the dogma that “timing never works” so that we can learn from discussion of the many possible valuation-informed strategies. The Passive Investing dogmatists and the Valuation-Informed Indexing advocates are working at cross purposes.
The dogmatism is hurting us all. Big time.
Rob
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
“What would John Bogle say”
John Bogle doesn’t claim it’s impossible to provide data or make comparisons. In fact, he does this all the time. Likewise the coffeehouse portfolio has published returns because it’s a real methodology.
Rob recently stated that he just keeps saying the name of his undefined investment system in the hopes that it will become a big search term on google and he can make money off that. “If it works, it should pay off big.” See:
http://www.four-pillars.ca/2009/05/21/leveraging-old-blog-posts/#comments
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1241703133/11#11
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
John Bogle doesn’t claim it’s impossible to provide data or make comparisons. In fact, he does this all the time. Likewise the coffeehouse portfolio has published returns because it’s a real methodology.
Nor do I say that it’s impossible to provide data or make comparisons. It is by providing data and making comparisons re the various strategies that we all learn.
There is a calculator at my site (“The Investor’s Scenario Surfer”) that permits the user to see how any Valuation-Informed Indexing strategy that he wishes to explore fares over the course of a 30-year returns sequence in comparison to any rebalancing strategy. I am obviously encouraging people to look at the data and to make comparisons.
What I do not encourage is the idea of trying to identify one particular stock allocation that all should go with at each particular P/E10 level.
Why do I feel so strongly that a one-size-fits-all approach can never work? Because of what I learned from John Bogle. Bogle says that adjustments need to be made taking into consideration the investor’s life goals, financial circumstances and risk tolerance.
The only difference between what Bogle says and what I say is that I say that adjustments are also needed for a fourth factor — the valuation level that applies at the time the allocation level is being set. There is no one stock allocation level that makes sense at all valuation levels for any investor.
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
Lindsay, obviously you have some sort of long-term animosity with Mr. Bennett. I did take a look at those links and 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. Have you actually looked at his calculators????
You do know that asset allocation strategies is just a way to adjust for relative values, right? That is of course Mr. Bennett’s point.
The obvious question to this late comer to the cat-fight is why the anger? name calling? etc. on both sides. You are free to ignore his thoughts and posts.
“…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
It’s come up several times again at your forum.
That forum is owned by John Greaney, Lindsay. John is the author of one of the Old School retirement studies that have been discredited as a result of the work we have done in the Retire Early and Indexing discussion-board communities over the past seven years (I am the founder of the New School of Safe Withdrawal Rate analysis — please see the Retirement Risk Evaluator calculator at my site and the comments quoted there by numerous big-name experts that the Old School retirement studies do not work). That forum was set up for the purpose of organizing smear campaigns to destroy the various Retire Early and Indexing boards. My voice is the leading voice in both of those communities speaking out in opposition to the tactics employed by the Greaney Goons.
I’ve responded to the question you are asking here on scores of occasions. The rule that I follow is that, when I’ve answered a question so many times that I am myself tired of hearing the answer, it’s time to let go of it. So I have stopped answering the question at that forum. Since this is a different place, I can answer it here.
There is no one Valuation-Informed Indexing strategy for the reasons explained in my post above. Different allocation adjustments are appropriate for different investors. If you take the same portfolio as the Coffeehouse Portfolio or the Wellington Fund and instead of following a rebalancing strategy you adjust your stock allocation in response to big price changes, you will achieve higher risk-adjusted returns. I am not able to imagine how there could be any exception to this general rule.
Please note that I said the returns would be higher risk-adjusted returns. There are rare cases where a passive strategy beats a valuation-informed strategy. The calculators (which use the historical data) show that this happens in roughly one in ten tests. But something that works only in one case out of ten is risker than the something that works in nine out of ten tests. So I think it is fair to say that VII is always better on a risk-adjusted basis.
I have not specifically done tests of the Coffeehouse Portfolio or of the Wellington Fund. I think it would be fine if someone did that, but it is obviously going to take more work than testing the S&P index since the calculators permit easy tests of the S&P Index. There’s an important caveat that applies if you do only a 17-year test (as you suggest in the post at the link). The calculator shows that VII beats rebalancing about 90 percent of the time at the conclusion of 30 years. VII is a long-term strategy. The odds are obviously less that it will be ahead at the end of only 17 years. I can’t say what would happen at the conclusion of only 17 years.
The magic of VII is the way that it taps into the power of compounding returns. We never know when a crash is coming. When prices get insanely high, we know with certainty that one is coming. The point of VII is to protect yourself from the crash and then reap the benefits for many years to come. Run a test at the Scenario Surfer and then go back and look through the results year by year to come to understand why VII prevailed in the end. What happens is that sooner or later there is a crash that causes the Passive Investor to fall behind. Sometimes, he only falls behind by a small amount. But the VII investor puts that differential into stocks at a time when prices are reasonable. Over time, the power of compounding causes the differential to grow larger and larger and larger. That’s why the VII investor can sometimes have at the end of 30 years a portfolio of twice the size of that held by the Passive Investor.
The size of the difference caused by compounding is a counter-intuitive phenomenon. We all acknowledge that compounding is a plus. But it is only by looking at the numbers that you can come to appreciate how much of a difference it makes to have compounding working for you instead of against you. The Passive Investor insures that sooner or later compounding will be working against him (because those who do not change their allocations in response to big price swings will sooner or later lose most of their assets in a price crash, thereby giving up many years of forward movement). The VII investor sidesteps the big hits and thereby permits himself to tap into the benefits of long-term compounding in a far more effective way. The idea of taking valuations into account sometimes seems like a small thing in the short term. In the long term, it makes a huge difference.
Rob
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
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.
The historical data is public information, Lyndon. It is available at Robert Shiller’s web site. Anyone who cares to can check this out 100 different ways.
I have provided four calculators that aid in the checking-it-out process. I have done hundreds of tests myself and I am personally persuaded.
I certainly do not advise that anyone go solely by what I say. You should check it out for yourself.
I can tell you something that would be even better. Go to the boards where honest posting on these topics has been banned and ask that the discussions of these questions that were held at those boards in earlier days be reopened. The Bogleheads.org board is a wonderful place to have these discussions. The board is comprised primarily of Passives. So we are sure to get challenging questions there (obviously a good thing). But most who post at that board are smart as smart can be. So the discussions tend to be at a high level. And there are scores of regular posters there who possess a solid understanding of the benefits of valuation-informed strategies. So we will be hearing both sides effectively represented if the discussions are reopened there. Plus — we can get Bogle and Bernstein and Swedroe involved since they participate in the annual meetings. It’s a win/win/win/win/win.
The internet provides us the communications medium we need to get to the bottom of this. If there are any flaws to the VII strategy, there is no one who benefits more from learning about them than I do. But even those on the Passive side benefit from learning that there are flaws. If we were to learn that there were flaws, that would build up the confidence of the Passives a bit, obviously a good thing for those following that strategy. If VII passes all the tests, that’s obviously also a big benefit. That means that those now following a Passive approach can learn how to retire at least five years sooner by making one small common-sense change in their allocation strategy.
I have a calculator at my site that tells those who have lost huge amounts of money in the crash how to make it all back overnight (effectively). The historical data shows that a $100,000 portfolio following a VII strategy is likely to end up in 30 years ahead of a $150,000 portfolio following a Passive strategy. That means that, if you lost one-third of your assets in the crash, you can effectively be made whole just by making a switch to the valuation-informed strategy. Sound promising?
You don’t want to do this because some fellow on the internet says it is a good idea. You want to know what all the people at Bogleheads think and what all the people at Vanguard Diehards think and what all the people at Early Retirement Forum think and what all the smart blog owners think. Let’s discuss! Let’s learn together! Let’s retire early!
Is anyone able to imagine any possible downside?
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!
A quick look at the coffee house portfolio results tells me that $1,000 invested for the 17 years would end up at $3,418 on Dec. 31, 2008.
Compare this to an investor who says price is the most important thing, Warren Buffett. Over the same time period your $1,000 would be $9,050 using Mr. Buffett to do your investing for you.
Kinda puts things in perspective doesn’t it!
“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!
I defy you to find any great investor [with a public record] that says that price doesn’t matter.
There are none. Even the people who post abusively at the forum linked to above are willing (to their credit) to acknowledge that valuations affect long-term returns. This appears to me to be universally accepted.
as to Mr. Bennett’s thesis, I find it impossible to understand why it is so controversial.
I can point to four big factors at work here (I believe that there are more than four).
One is that I don’t post about valuation-informed strategies at boards at which only other people who already believe in valuation-informed strategies congregate. I usually post at places where there are large numbers of Passive Investors. I write for the average middle-class investor, not niche groups. Some of the Passives (not all or even most, but some) do not think that it is proper for anyone to come to a board where they are in the majority and question their basic investing principles. They liken it to a dog lover posting at a cat lover’s board. Or to an atheist posting at an fundamentalists board.
My view is that we need to question our own ideas to learn more about how to invest effectively. I don’t question people’s ideas to get them stirred up, but to help them learn (and to learn myself while doing it, to be sure). I believe that ideas that cannot stand up to civil and reasoned and friendly questioning are not worth holding.
A second big factor is that I do not just say that Valuation-Informed Indexing is right, I also say that Passive Indexing is wrong. I have seen some people get away with making a quiet case for taking valuations into account and not get bricks thrown at them. I say things more clearly and more directly and more firmly and more boldly. It’s harder to ignore my stuff.
Again, I don’t do that for the purpose of upsetting anyone. I do it because I think that stating things clearly is the best way to achieve clarifications of the issues involved. If Passive really cannot work, I want to know that and I want others to know it. If I am wrong, I want people to show me that I am wrong. If I am right, I want to be able to see clearly why that is so. I don’t see the benefit of saying things in a hazy, vague way (although I certainly see the benefit of saying things in a friendly, respectful, civil way).
A third thing is that I specifically said that the Old School retirement studies (which contain no adjustment for the effect of the valuations level that applies on the day the retirement begins) are analytically invalid. There are people in our community who have Old School studies or calculators at their site or who recommend the use of such studies or calculators in books they have written. These people tend to be popular posters because they have web sites of their own. These people have special influence and they have an intense desire to block discussions that would require them to make changes in their books or studies or calculators if they were permitted to continue.
I have always extended the hand of friendship to all those who have posted abusively. I have zero desire to be in a battle with anyone. But I believe that these questions are of great significance and that the important thing is to come up with the right answers. I’ll acknowledge to having been unyielding on the question of whether the aim should be to learn the right answers to the most important questions. I don’t apologize for that. I think that people need to know the right answers when their retirement money is at stake.
A fourth reason is that I am a big believer in exploring the implications of ideas. I don’t find the answer to one question and then stop. I keep going and going. Some wouldn’t object so much if I offered the opinion that valuations matter and then never did anything with the idea. I am always in the process of developing a new calculator or writing new articles or recording new podcasts. The dogmatists (most Passive Investing advocates are not dogmatists but a not-tiny number are) don’t want me around because they see that my constant development of new tools is going to cause them endless trouble in their efforts to keep “the troops” in line. Again, I offer no apologies. I am excited about the new ideas and I want to see them developed as much as is possible in as quick a time as possible. My motto is — More! Bigger! Better! Bolder! Some love that. Those who do not tend to develop more than a mild distaste for the Valuation-Informed Indexing project.
Rob
“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
Rob thinks he can use PE10 to predict when to make buys and sells. Passive strategies use rebalancing to accomplish much the same thing.
This is really the entire debate summed up into a few words. Passive Indexing says that we should always stay at the same stock allocation (that’s the purpose of rebalancing). Valuation-Informed Indexing says that high stock allocations are more risky at times of high prices and that thus we should go with lower stock allocations at times of high prices.
No investment strategy which includes stocks looks very good when viewed at the bottom of a market downturn.
That’s a fair enough statement. But before the market downturn the Passives were saying that there is no need to consider alternatives because the recent returns for Passive had been so good.
Say that Valuation-Informed Indexing really is superior. When are we going to go to the trouble to have the discussions needed to find that out? If we cannot question Passive at times when it is sailing and we cannot question Passive at times when it is failing, when can we question it? How do we ever advance to something new if we cannot question the thing that is old?
I disagree.
This part is healthy and helpful.
I see your scam is much more honest and upfront than Rob’s.
This part is yucky.
Bill’s blog entry says that we need to be protected from Wall Street. What street is it that is responsible for this yucky junk? How do we get protection from [i]that[/i] street?
I don’t like to think that it is Passive Investing Street that is responsible for this sort of thing. But I don’t hear too many Passive Investing advocates speaking out in strong terms against it. That saddens me.
If it’s a choice of the two, I think I prefer Wall Street. I don’t applaud everything that comes from Wall Street. But I don’t recall hearing too many comments quite that low from Wall Street. I think that Passive Investing is an idea that started out sweet and that over the years has been transformed into something sometimes very sour.
Rob
@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!
I don’t think that the coffee house portfolio and Mr. Bennet’s value-informed indexing is that far apart
I agree that the two approaches have much in common, Dave. I of course also think that taking valuations into consideration when setting your stock allocation is an important enhancement.
My view is that Bogle started a revolution in middle-class investing with his development of the indexing concept but that the first-draft version was not perfect in every particular. And that now we should be trying to fix what’s broken.
I think Buffett’s ideas are right on. But I think that most middle-class investors do not have the time or inclination to do the work needed to pick stocks effectively. I think of Valuation-Informed Indexing as a combination of Buffett’s best ideas with Bogle’s best ideas. You get both the value orientation of Buffett and the simplicity of Bogle. My motto is — Buffett and Bogle go together like chocolate and peanut butter!
Rob
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.
One thing you’ll soon learn if you haven’t already is that Rob doesn’t run an open blog.
The link at my name goes to my web site. At the left side of the page is a link to my blog (“A Rich Life”). I welcome comments representing all points of view on the topics explored at the blog. My favorite comments are the ones that make the case for Passive Investing. Why? Because I often make the case against Passive Investing and I believe that we need more comments coming from the other side to give the discussions balance.
I delete abusive comments because I feel so strongly about the benefit added by community interaction. I have found that abusive comments intimidate many community members. When things get too nasty, some of the best contributors take their leave of a community. I’d rather hear the contributions of those who care about the subject matter and about their fellow community members than the contributions of those who are not willing to go to the trouble to present their views in a civil and reasonable way. I often invite those who have had abusive comments deleted to take another stab at expressing their thoughts without running afoul of the community norms. I feel a little bad when they are not willing to do so. But not as bad as I would feel if the vast majority that is willing to abide by the community norms were to feel intimidated by the ugliness that I have seen put forward by those who are not when no efforts are made by site administrators to rein them in. I believe we owe it to all community members (including those with a temptation to post abusively) to enforce reasonable posting rules in a reasonable manner.
It is true that J.D. and I recently had a disagreement. It has since been resolved. During the site redesign here, I became unable to post comments on this thread for several days. I have been banned from numerous discussion boards for posting my honest beliefs about the flaws in the Passive Investing model. I wrongly jumped to the conclusion that J.D. had banned me and wrote that at my blog. I have obviously since learned that that was not the case. As soon as I learned of my mistake, I added an addendum to the blog entry reporting on the realities accurately. J.D. asked that I remove the sentences saying that he had banned me (he rightly believes that it is important to his reputation that he be known for permitting different viewpoints to be expressed here). I didn’t feel comfortable removing the original wording as I believe that people should be able to view the entire record when forming a personal take about the events that transpired (for example, people might want to take into consideration the fact that I made a mistake in this matter in forming an opinion as to whether I have made mistakes re other matters). I ended up adding language in bold noting the mistake immediately underneath the paragraph containing the mistake. J.D. has told me that he is now satisfied with how the matter has been handled.
J.D.’s handling of this thread shows me that he sees the value in allowing both sides of the Passive Investing topic to be heard. I believe that his handling of this thread may end up serving as a model for other blog owners faced with similar circumstances. One of the big problems that we are struggling with today is that Passive Investing became so popular for a time that it was virtually beyond criticism. I am working hard to change that and some of the comments that I put forward shock people who have neverbefore heard such points being made.
I want to stress that I have great respect and admiration and affection for those who developed and refined and promoted the Passive Investing concept for many years. Their insights have helped millions (including Rob Bennett, to be sure!). That said, I strongly believe that there were serious flaws in the first-draft effort and that we all need to be working hard to correct those flaws today. I encourage all who work in this field to develop a greater skepticism re claims that it is not necessary for investors to change their stock allocations in response to big price swings. But I also strongly oppose any thought that engaging in personal attacks is an appropriate way to go about the Learning Together project that we need to engage in. The Passive Investing advocates made some mistakes. Guess what? They’re human too. When you’re putting together your list of humans who have made big mistakes, it would be perfectly appropriate to put Rob Bennett’s name up near the top of your list (please witness the situation with J.D. described just above).
Bill Schultheis and J.D. Roth are both Passive Investing advocates. I am bound in conscience to say that I believe they are are making a mistake when they suggest that there is no need for middle-class investors to change their stock allocations in response to big price changes. I am also bound in conscience to report that I respect the work they have done in this field and bound in friendship to hope that it will be possible for me to work with both of them to over time make both the investing advice that they offer and the investing advice that I offer more effective. My hope is that I will be able to learn some things from them and that they will be able to learn some things from me. I’ve seen the interaction of different points of view produce great work before and it is magic when it happens (this is why I chose a swirling magic wand as the favicon for my site).
I don’t know everything. Bill doesn’t know everything. J.D. doesn’t know everything. I make mistakes. Bill makes mistakes. J.D. makes mistakes. Working together, I believe we can produce great advances. And I of course believe that this is so not just for us three but for the millions who are beginning to open up to the idea of reexamining some basic investing questions as a result of the economic crisis we are living through today.
There’s an article at the “Banned at Motley Fool!” section of the site that provides the background re the death threats. The article is entitled “Internet Harassment by ‘Defenders” of the Conventional Retirement Studies.” It sets forth the text of an e-mail that I sent to my congressman (Rep. Frank Wolf) re this matter.
Rob
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.
Rob’s passive aggressive behavior is nicely demonstrated there as well. First he ascribes nasty motives to J.D. and lumps him in with all the other evildoers who have banned him or at least refused to praise him, and then he claims to have no idea what J.D. is upset about.
He has not only written to his congressman but he also claims to have written, the local police, the EFF, and the FBI. All with no results except possibly being added to their crank lists. (The EFF is particularly funny as their mission is to protect the internet FROM people like Rob.) Getting people to react to you and then calling on an authority is standard passive-aggressive practice. In fact many of Rob’s bannings have come after Rob demanded that other people be banned and the moderators decided that he was just too high maintenance.
This little tiff could easily have been avoided had Mr. Roth simply relinquished control of his blog and permitted Mr. Bennett to post whatever guest post he wanted to post whenever he wanted to post it. It seems to be a rather modest demand. After all, clearly whatever Rob has to say is vitally important (at least to Mr. Bennett) and Get Rich Slowly has more traffic than Mr. Bennett’s blog so it naturally follows that he be afforded the opportunity (at Mr. Roth’s expense) to get the word out about his “beliefs” for the good of the “community.”
He has not only written to his congressman but he also claims to have written, the local police, the EFF, and the FBI.
The “EFF” is the Electronic Frontier Foundation. It’s true that I contacted all these people. In the case of Rep. Wolf and the local police, it was by e-mail (in addition to telephone calls), and in the case of the local police, there were several in-person meetings. In the case of the EFF and the FBI, the contacts were through telephone conversations. The local police referred me to a Virginia state police group that deals specifically with internet crimes. There were both telephone and e-mail contacts there as well.
I believe that the fact that such contacts have been needed tells a story about stock investing that is rarely told. The premise of the Efficient Market Theory (which is the theoretical foundation of the Passive Investing model) is that investors are 100 percent rational (that is why it is said that the market price is right and that “you can’t beat the market” by paying attention to valuations). If most investors really were 100 percent rational, there would obviously never be a need for such contacts to be made. In a 100 percent rational world, the Passives would make their case, the Rationals would make their cases, and those trying to decide between the two would do so based on a hearing of both arguments. That’s obviously not the world we live in today.
All with no results except possibly being added to their crank lists.
That is not precisely correct. But it is correct to say that the Campaign of Terror against the Retire Early and Indexing discussion-board communities continues on to this day. There have been numerous threads at the Vanguard Diehards board (and a smaller number at the Bogleheads.org board, where enforcement of the ban is tighter) expressing a desire that the ban on honest posting on valuation-related topics be lifted. Even post-crash, these requests have been denied (although we have seen a big positive change in investor willingness to hear new ideas since the crash and even in the willingness of some Goon-leaning posters to tolerate them). Again, this is something that we would not see in the 100 percent rational world envisioned by the Efficient Market Theory and the Passive Investing Model of understanding how stock investing works.
The EFF is particularly funny as their mission is to protect the internet FROM people like Rob.
My understanding is that their mission is to ensure free speech on the internet. My mission is to extent free speech protections to discussions of safe withdrawal rates and other valuation-related investing topics. My take is that we are pursuing the same general mission. Ron is right, though, that the woman who I spoke to at the EFF responded negatively to my request that her group help out. She did indeed suggest (without saying it explicitly) that her group would be more likely to help the abusive posters than the majority of community members who have on numerous occasions expressed a desire that honest posting be permitted. I was astounded by that response but I am confident that the woman was expressing her sincere views re what should be done.
Getting people to react to you and then calling on an authority is standard passive-aggressive practice.
I have never had any problem whatsoever getting the reaction I have wanted to see to my writings in this area. I have always had many fine community members get involved asking lots of great questions and offering lots of outstanding feedback. I couldn’t ask for a better reaction in that respect. I have certainly never once in any way, shape or form suggested that I appreciated the reaction of those who have posted abusively. There is no other community member who has spoken out as strongly or as often in opposition to the Goon tactics. I believe that that stuff does great harm to internet communities. I have seen it do great harm on numerous occasions.
In fact many of Rob’s bannings have come after Rob demanded that other people be banned and the moderators decided that he was just too high maintenance.
There’s a measure of truth to this. I have of course never once put forward a post that in any way, shape or form could be considered abusive by any reasonable person. And I have never had a site administrator remove a post of mine on grounds that it was abusive. Yet I have indeed been banned from numerous forums. So there clearly is something out of the ordinary going on here.
I believe that it is that the claims that I am making (that the Passive Investing model is not only imperfect but reckless, that it has caused great financial ruin and imperiled the entire economy) are shocking to many people, both those inclined to engage in abusive posting and those not so inclined (a far greater percentage of the population). The majority has always expressed a desire to be able to hear both sides of the story. But the Goons have always been unwilling to listen to any suggestions that they ease up in their relentless attack strategy. And those who possess a vague desire to hear the arguments but who are not yet convinced of their merit have generally ended up not being too upset when a ban on honest posting on these questions was imposed.
Most people who follow Passive Investing are not dogmatists. They think that the ideas generally make sense and they know that lots of experts endorse them. So they generally go along with the conventional strategies. They’re perfectly happy to hear about some new ideas and like to be given opportunities to ask questions about them. But they find the behavior of the Goons degrading and humiliating. So, when faced with site administrators who are unwilling to honor their promises (all of the discussion boards at which I have posted have rules in place that protect us from the Goon tactics) to protect us from the ugly stuff, they favor a ban on honest posting over having to hear more of the abusive stuff. It is true that the Goons have burned numerous boards to the ground (people of intelligence and integrity flee from communities that permit the Goon tactics) and the site owners obviously have an interest in protecting their communities from destruction.
The question is — Why have the site owners not acted to rein in the Goons? Imposing limits on the extent of abusive posting permitted would obviously solve the entire problem (and open the door to lots of exciting discussions of new ideas) in about three minutes. So why have we seen such a reluctance to adopt this common-sense solution?
I think that a big part of it is that the Passive Investing model became so dominant during the out-of-control bull. Many people (including site owners and experts) have a hard time believing just how flawed this model really is, given how popular it once became. That’s what needs to change. We cannot escape Passive Investing until we come to learn just how dangerous it is and we cannot learn just how dangerous it is until we are willing to open our minds enough to hear the full case against it. And we cannot hear the full case against it until we are able to work up the will to do something about the Goons. Which requires that we develop some serious doubts about the merits of the Passive model.
The stock crash has been a big help. It may be that it will take another huge stock crash to take us to where we need to be to have fully open discussions of the flaws of the Passive model. I certainly hope not and I am personally not convinced that this is so, but I don’t think that such a conclusion would be entirely unwarranted given what we have seen for seven years now. The good news is that the stuff on the other side of the mountain is so wonderful that even if we suffer another huge price crash we may someday look back and conclude that it all was worth it given what it led us to. That’s my guess for what we are going to learn on the last page of the saga.
Humans!
Rob
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.
I apologize for the mistake.
I also feel bound in conscience to put the matter in a more reasonable context than the words above provide.
How can it be said that my belief that J.D. had imposed a ban was “ridiculous” given what I have seen for seven years now? I was the primary person responsible for building the Retire Early board at Motley Fool into the most successful board in the Motley Fool site’s history and the co-founder of the site wrote an effusive endorsement of my book on saving. Yet I was banned from that site. There are scores of posters at the Vanguard Diehards board who said publicly that I was one of their favorite posters at the board and that the discussions I brought to it were some of the best discussions ever held there. Yet Morningstar banned me from the site. There are discussions of safe withdrawal rates nearly on a weekly basis at the Bogleheads.org site and yet my SWR calculator (The Retirement Risk Evaluator, the only analytically valid SWR calculator available on the internet today) is rarely linked to in these discussions largely because the regulars there know that that entire discussion-board community was founded as a means to escape my posting on the realities of SWRs (the “leaders” there had demanded for two years that Morningstar ban honest posting on SWRs and Morningstar had refused, so they set up an entirely new site and asked that their supporters make the switch).
Given that history, can it be said that it was not perfectly reasonable for me to believe that this was another case in which a ban on honest posting on the flaws of the Passive Investing model had been imposed?
If there had never been a ban imposed anywhere, the thought would probably not have entered my mind that there had been a ban in this case. That’s the world in which all Passive Investing advocates live. Passive Investing advocates assume that they will always have a right to post their honest views anywhere they please and this expectation is confirmed for them over and over and over again. It doesn’t work that way with critics of the Passive Investing model. There have been numerous posters banned from the Retire Early and Indexing boards and I am not able to think of one case in which a ban was imposed because the poster engaged in abusive posting. In every case it was because the poster pointed out flaws in the Passive Investing model and did so effectively and became popular in the board community because of his exciting and enlightening posts.
What is it about this investing model that causes those who support it to feel such intense defensiveness? That’s the question we should be exploring. Defensiveness is the opposite of confidence. For a long-term strategy (both Passive Indexing and Valuation-Informed Indexing are long-term strategies) to work, the investor following the strategy needs to feel enough confidence in it to stick to it through the hard times. Are there any Passive Investors who feel enough confidence in their strategy to invite questioning of it? I think it would be fair to say that, if there are any, their number is very, very small. I think it would also be fair to say that this reality represents a very, very big problem for this investing model.
I made a mistake about J.D. That’s an established fact. An apology is indeed in order. All that is so.
But that is not at all the entire story. Is an apology not owed to the thousands of people who built the Retire Early board and then watched Goon posters burn it to the ground? Is an apology not owed to the thousands who built the Vanguard Diehards board and watched it virtually burned to the ground when the “leaders” there abandoned Morningstar because Morningstar was not willing to compromise its integrity in response to the demands of the “leaders” that it do so? Are the millions of middle-class investors who lost large portions of their retirement money because the “experts” told them that there was no need to cut back on their stock allocations at a time when stocks were selling at insanely dangerous prices not owed apologies?
There should be all sorts of apologies coming from all sorts of places and being directed to all sorts of places. The bottom line on all this is that we all should be concerned about the possibility that our entire economy may be in the process of going over a cliff. We should be working to learn what it is that we need to learn to ensure that that does not happen. Apologies can help in the healing process that is needed, and when they can help, they should indeed be delivered. When demands for apologies slow things down, it might be better for us not to be too demanding until the healing process is far enough along so that the apologies will begin to appear on their own without being forced out.
We destroyed ourselves by giving in to a dark urge within that tempted us to engage in reckless investing behavior. That’s the bottom line re all this. We did great harm to ourselves. We need to apologize to ourselves. We need to start caring enough about our futures to work up the courage it will take to start putting things back together instead of working ever more furiously to tear things apart.
We made a mistake. We hurt ourselves and others. We need to own up to the mistake. And then we need to move on to something better.
I made mistakes along the way, just as has every single person involved in either the internet debate or in the out-of-control bull that preceded it and gave birth to it. I have no trouble with the idea of me being the first to step forward to say the words “I” and “Was” and “Sorry.” But I don’t think that I would be aiding the healing process if I were to fail to note that we need a whole big bunch of others stepping to the front of the room and offering similar healing words.
It’s only the entire U.S. economy at stake here. It’s only the financial futures of each and every one of us. The words “I” and “Was” and “Wrong” are the three magic words. They are words of great power. We need to see lots of good and smart people making use of that power to help carry us all to a far better place.
I was wrong.
Now —
Who wants to be the one to go down in investing history as having been the one to speak second?
Rob
Bennett often claims boards that banned him were subsequently ‘burned to the ground’ by “Goons.”
Here are the current site statistics on four of his more favorite targets. I leave it to the observer to decide what to belive:
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1242742106/68#68
“But they find the behavior of the Goons degrading and humiliating.”
Once again you go putting thoughts into the heads of the people that banned you.
“It is true that the Goons have burned numerous boards to the ground (people of intelligence and integrity flee from communities that permit the Goon tactics) and the site owners obviously have an interest in protecting their communities from destruction.”
A good example of this is the Bogleheads. After Rob’s posts at the Vanguard Diehards, a frequent request was for a forum just like the Vanguard Diehards, only free of Rob’s rants. Some threads contained the phrase: “This thread has been hocused.” based on Rob’s user name of “hocus”. Some posters started a thread and specifically asked Rob not to reply in order to keep the thread serious and on-topic.
One of the users there put up a new forum elsewhere and said it would be just the same, only he guaranteed that Rob would be permanently banned. Thousands of Vanguard Diehards users moved to the new board within the first few days. I have never seen so many people move so fast from one forum to another.
“The question is – Why have the site owners not acted to rein in the Goons? Imposing limits on the extent of abusive posting permitted would obviously solve the entire problem (and open the door to lots of exciting discussions of new ideas) in about three minutes. So why have we seen such a reluctance to adopt this common-sense solution?”
The Vanguard Diehards forum did, in fact, ban Rob. But it was too late. Most of their users had already made their new home at the Bogleheads forum. I think they originally made the mistake of treating their investing forum like Wrestling on TV. Because so many people point out the errors in Rob’s posts, they thought he had “good ratings” like the “bad guys” in wrestling. But once people had the opportunity to change the channel, it was all over. Likewise, Rob has his own blog but and has several times been given his own forum. But given the choice, no one goes there, so he returns to setting up shop on other people’s sites where he hopes that inertia will keep people around.
Here are the current site statistics…
There has not been any significant discussion of how to retire early at the Retire Early board at Motley Fool for about five years now. The thousands of people who built that community resource have lost access to it because one individual got an important number wrong in a study that people use to plan their retirements and because the site owners did not honor their promises to protect us from the tactics that were used to destroy the board.
The Vanguard Diehards board today receives only a fraction of the posting that it attracted in earlier days. It was for a long time the most exciting investing board on Planet Internet. There are efforts to rebuild the board advanced there on almost a weekly basis. They are always shot down by the “leaders” of the Bogleheads.org board, who are obviously concerned about what it means for the Bogleheads.org board if honest posting on valuations-related topics is permitted at Vanguard Diehards.
The Bogleheads.org board gets huge traffic. But the posters who congregate there obviously suffered huge financial losses as a result of the ban on honest posting that has applied at that board since the day of its creation (the founding purpose of the board was to provide a way for the “leaders” there to escape Morningstar.com, which was at the time permitting honest posting on safe withdrawal rates and other valuations-related topics). Even Taylor Larimore, co-author of The Bogleheads Guide to Investing, has announced that he is giving thought to selling all his stocks if prices fall again. If investors were 100 percent rational (the core premise of both the Efficient Market Theory and the Passive Investing model for understanding how stock investing works), Taylor would make use of his discovery of the weaknesses of the risk-analysis aspect of the Passive model to learn about new and better strategies. But this has not happened and many of the Passive Investing enthusiasts who meet at that board have not insisted that it happen. Why?
I haven’t visited the Early Retirement Forum in some time. It was still attracting a good bit of traffic the last time I checked. But I think it is fair to say that the discussions there would be far more exciting and valuable if honest posting on the New School of Safe Withdrawal Rate analysis were permitted there. The Old School FIRECalc calculator is frequently promoted there (FIRECalc was created by the former owner of that site).
There were two fine boards at one time at NoFeeBoards.com, the FIRE board and The SWR Research Group. Neither of those boards even exists today. The entire site, which was once one of the most exciting investing sites on the internet, is today defunct. Why? The site owner there took a vow always to permit honest posting on SWRs. You can guess how the Goons responded to that one.
Passive Investing was a big mistake. It was not the first big mistake in the history of mankind. But it was indeed a big mistake. It is not so that investors do not need to adjust their stock allocations in response to a rise to dangerous levels of overvaluation. We all very much do need to make such adjustments if we are to hold realistic hopes of long-term investing success.
Should we be talking about how to know when to make the allocation adjustments we need to make rather than about the history of the Campaign of Terror against the various board communities that have held discussions on these important questions over the past seven years? It sure seems so to me.
I think it would be fair to say that the big step forward takes place when the millions of middle-class investors who have been done financial harm by the Goon tactics works up the courage to insist that effective action to rein in the abusive posting are taken.
It will happen. The mistakes that were made are too serious for us to continue to duck the question forever. Given that we know it is going to happen sooner or later, is the most sensible and charitable thing to do whatever can be done to see that it happens as soon as possible?
That’s certainly my take re all this.
When a few influential Passive Investing advocates work up the courage to speak out in support of the healing process that we all need to see and that the vast majority of us want to see, that’s when the true fireworks (the good kind!) begin!
Rob
a frequent request was for a forum just like the Vanguard Diehards, only free of Rob’s rants. Some threads contained the phrase: “This thread has been hocused.” based on Rob’s user name of “hocus”. Some posters started a thread and specifically asked Rob not to reply in order to keep the thread serious and on-topic.
All of these words are accurate.
The full truth of course is that there were also many, many requests that honest posting be permitted and that something be done about the abusive posting problem.
Both things are so.
There were many, many community members at Vanguard Diehards who wanted the posting rules (which protect us from abusive posting) to be honored and there were a good number who favored the use of abusive posting to bring effective questioning of the Passive Investing model (I was certainly not the only one questioning the model — there were scores of us) to an end.
It is possible for dogmatists to insist that effective questioning of their investing strategy be brought to an end. It is even possible for them to see bans put in place for a time. But is a ban on honest posting re the flaws of an investing model a long-term strategy? I say “no.”
In the long term, the economic realities prevail. For the long-term investors, permitting civil and reasoned discussion of the pros and cons of all investing strategies is essential. That’s why the published rules at all of the boards promise to protect us from the abusive posting tactics that were used to do such damage to them.
There is wisdom in those rules. Those rules reflect the true beliefs of the community members who congregate at the boards. Most of us want to know the realities of stock investing.
Are we human? Are we weak? Are there times when we give in to temptations to engage in self-destructive behavior?
Yes, yes, and yes.
Still it remains so that in our hearts we want to know the realities of stock investing. And we want to interact with our fellow community members in civil and reasoned and friendly and warm ways.
We are weak. And we are strong.
We are human. We are all that that suggests.
We are not 100 percent rational.
It’s not even a close call.
Rob
I think they originally made the mistake of treating their investing forum like Wrestling on TV. Because so many people point out the errors in Rob’s posts, they thought he had “good ratings” like the “bad guys” in wrestling.
I see some truth in this description of events. I think it is excessively harsh re Morningstar. But it is not entirely off the mark.
I see no evidence that Morningstar wanted its board to become akin to wrestling. Morningstar sincerely wanted posters with different views to interact in a civil and reasonable and warm and friendly way. And most community members wanted the same.
The big rub is that it was the “leaders” of the board who most wanted a ban on honest posting on the analytical errors in the Old School retirement studies in particular and on the flaws in the Passive Investing model in general. Many community members feel great respect and affection for the “leaders” and were willing either to help them out or at least to limit their criticism of the irresponsible behavior of the “leaders” because of the efforts that the “leaders” had taken in earlier times to build a fine community.
This is a reality not just on discussion boards, but everywhere that Passive Investing has been advocated. People look up to experts. The experts who have promoted this strategy have painted themselves into a corner. Passive has been advertised as an approach that is “rational” and “scientific” and “prudent” and “proven” and “safe.”
It is none of those things.
If people want to say that that’s just my opinion, that’s fine. It’s a good thing for people to be skeptical of what I say and it is a good thing for other viewpoints to be represented in any discussions held.
But it is not a good thing at all for the “experts” to continue the pose that Passive is The One True Way That Should Never Be Questioned.
I think it would be fair to describe me as the leading critic of the Passive model alive today. But I am certainly not the only one. The names of those who have questioned this model include: (1) Robert Shiller; (2) John Walter Russell; (3) Rob Arnott; (4) Cliff Asness; (5) John Mauldin; (6) Ed Easterling; (7) Andrew Smithers; (8) John Hussman; (9) Andrew Smithers; and (10) Jeremy Grantham. Are we to believe that allof these people are suffering from mental illness? That is just too much.
The documented reality is that the case against Passive Investing has been growing stronger and stronger and stronger for close to 30 years now. There is now a mountain of evidence showing that long-term investors must change their stock allocations when prices reach truly insane levels. Bans on honest posting are not going to make these realities go away.
We need responsible Passive Investing advocates to come forward, speak out in strong opposition to the Campaign of Terror, and urge the launching of a national debate on the pros and cons of the Passive model.
If it is a good model, it will pass the test with flying colors.
If it is a gravely flawed model, we will soon get about the business of moving on to something better.
That’s as it should be.
Rob
But once people had the opportunity to change the channel, it was all over.
I think it is fair to say that every single person reading these words knows in his or her heart what channel the vast majority of middle-class investors are going to choose when they are for the first time offered a channel that permits honest and informed discussion of both the pros and cons of both the Passive and Rational models in an environment in which civil and rational and warm and friendly posting is encouraged and in which extreme violations of core community norms are reined in for the long-term good of all involved.
We all win when that channel moves to first place in the ratings.
Rob
“All of these words are accurate. The full truth of course is that there were also many, many requests that honest posting be permitted and that something be done about the abusive posting problem. Both things are so.”
There is no “Both” – it is the same thing. Rob is banned at both places, both places have honest posting. The abusive posting has had to find new outlets. For those you haven’t picked this phrase up yet “ban on honest posting” means Rob was banned. And even though Rob tries to get the opposition banned, or even stopped by the FBI or an act of congress, he claims that he is not the abusive one. It’s really someone else. Trust him.
“Are we human? Are we weak? Are there times when we give in to temptations to engage in self-destructive behavior? Yes, yes, and yes.”
And yet, website owners have the right not to have all this on their websites. You can still do it on your own website. The EFF, the FBI, your congressman, and the police would fully support you in that, but they won’t force people to read it.
I wish you the best of luck with whatever investing strategies you elect to pursue, Lindsay.
I hope that I can say that much without generating any additional “controversy.”
Rob
“I think it is fair to say that every single person reading these words knows in his or her heart what channel the vast majority of middle-class investors are going to choose when they are for the first time offered a channel that permits honest and informed discussion of both the pros and cons of both the Passive and Rational models in an environment in which civil and rational and warm and friendly posting is encouraged and in which extreme violations of core community norms are reined in for the long-term good of all involved.”
Gee, Rob, you have your own website, your own blog, and you’ve been given several forums for your own use and control… And yet “the vast majority of middle-class investors” have never chosen to hang out with you. Perhaps your vision of “honest and informed discussion” is extremely different from everyone else’s?
If you could step back from your ego for a moment, I think you would see that there are many forums already that fit your criteria. You simply have the personal problem of being banned from them.
There were two fine boards at one time at NoFeeBoards.com, the FIRE board and The SWR Research Group. Neither of those boards even exists today.
I had an email alerting me that Bennett was proffering his usual here.
Check my website link to see what happens when Bennett (hocus) is given rein over a board.
Check bogleheads.org to see how interested investors thrive in his absence.
I pity this blog’s proprietor. A word of advice in your ear: Unless your sole purpose in running this blog is traffic generation, you will ban him eventually. Save yourself the heartache.
Perhaps your vision of “honest and informed discussion” is extremely different from everyone else’s?
My investing views are not the views held by the majority of investors today, Lindsay. That much is certainly so.
There’s a discussion in the book “The Wisdom of the Crowds” about what it takes to make an efficient market. The book argues that a large community can indeed under some circumstances possess a greater capacity than even the smartest investor in the world to set prices accurately. But the book points out that this magic happens only if all community members feel free to express their sincere views without compromise or dilution.
We’re not there today. The Passive Investing model put the cart ahead of the horse. it assumed the place that we should be trying to get to. When we can all develop the grace to respect each other’s viewpoints, the market will be reasonably efficient. It doesn’t happen just by us declaring that it is so. It will take work that we have not yet completed to get us there.
Rob
“My investing views are not the views held by the majority of investors today, Lindsay. That much is certainly so.”
It is your views of “honest and informed discussion” that I was commenting on.
“I wish you the best of luck with whatever investing strategies you elect to pursue, Lindsay.”
And I wish you the best of luck at developing an investment strategy that you can sell, Rob.
Why Rob (hocus) Bennett is banned in so many places:
#53 & #54
QED
Rob said ‘The SWR board does not even exist today’
Not true, Rob.
Here is a link right here. Some of your best historical mania has been marinating there, ready for use in instructional settings, from up to six years ago! And still available for all who are interested:
http://s162532268.onlinehome.us/Sewer/viewforum.php?f=1
Bennett asks:
“Should we be talking about how to know when to make the allocation adjustments we need to make rather than about the history of the Campaign of Terror against the various board communities that have held discussions on these important questions over the past seven years? It sure seems so to me.”
YES! By God, YES. Who is stopping you?
You could start with comparing the performance of Lucky Seven to a 60/40 mix of S&P index and corp paper over 30 year slices, *including* of course, your criteria for buy and sell using Lucky Seven (which should be simple, as I understand your system using a single indicator, the 100P/E10, correct?) L
Very much looking forward to that information!
NOTE: EVERYTHING SAID ABOVE ABOUT ROB BENNETT, THAT WAS NOT WRITTEN BY HIM, IS A LIE. ROB IS CONSTANTLY FOLLOWED AROUND THE WEB BY GOONS AND PERSECUTED. THIS WILL NOT CHANGE UNTIL THE SITE OWNERS BAN ALL POSTS THAT DISAGREE WITH RATIONAL PEOPLE SUCH AS ROB AND MYSELF.
HAVE FUN.
Why Rob (hocus) Bennett is banned in so many places: #53 & #54
I don’t doubt for three seconds that there is great embarrassment among the Passive Investing dogmatists (and even among many Passive Investing advocates who are not dogmatic in their belief) about the negative events that have transpired during the first seven years of The Great Safe Withdrawal Rate Debate, critter.
Do you think that I have a magic wand that I can wave to make all that go away?
I do not.
There are things that I and many others can do to take a sad song and make it better. None of us possess supernatural powers.
The thing to do is to accept that the past cannot be changed and for all of us to work together to make the best that we can out of the future.
I have said on many, many occasions said that I would be thrilled to do all that I possibly can do (it is obviously not within the realm of possibility that I would agree to post dishonestly on what the historical data says re safe withdrawal rates). Every time I have been given some small bit of material to work with, I have done with it everything I could.
Would you be willing to consider the idea of being a wee bit more generous in your decisions as to how much to give me to work with? If you could find it in your heart, I think that might help lots of people feel better about lots of events that have done down.
Please give us all a hand here, critter.
Rob
Here is a link right here.
The material that appears at that link has been doctored.
And the person who hosts the material at the link does not possess a legal right to host it.
The material is owned by the person who owned the NoFeeBoards.com site. His screen-name was “El Supremo” or “ES.” After ES’s site was destroyed by the Goons, ES told John Walter Russell (my partner in the development of the calculators) that the material at the SWR Research Group belonged to him. He obviously did not give rights to the material to the people who destroyed his site.
There are several snippets of posts by ES available in the article at the “Banned at Motley Fool!” section of my site entitled “Internet Discussion Boards Ban Honest Posting on Valuations!” You can gain a sense of his general take re all this by reading those snippets. The short version is — ES was a strong proponent of Passive Investing but he was not generally (there are exceptions in the record) supportive of the Campaign of Terror against the Retire Early boards.
One of my hopes for future days is that we may be able to rebuild the NoFeeBoards.com site and attract back to it the many fine posters who built it as well as lots of new people every bit as excited about the idea of exploring the realities of stock investing in a warm and inviting and friendly posting environment (that was the ES vision that caused the site to be such a great success for a time).
Rob
Who is stopping you?
There are hundreds of fine posters who have contributed hundreds of wonderful insights over the course of the first seven years of our discussions, Caring Soul. Nothing has even been able to stop them. I certainly do not say different.
But I also certainly think it would be fair to say that the number of insights developed would explode if we could spread knowledge of what we have learned to tens of thousands and then hundreds of thousands and then millions of others.
I sure am not able to imagine any possible downside to doing so. Are you?
Rob
What Rob says is true. El Supremo gave ME the rights to the posts. I refuse to allow others to read them, however, without heavy censorship. Otherwise, naive readers might read the complete record without guidance and conclude that Rob is dishonest and misinformed.
It’s true, by the way, that I helped Rob develop the calculators found on our sites. Having a strong background in mathematics and statistics, I am unusually qualified to use programs as exotic as “Excel”. This program (called a “spreadsheet” by the cognosenti) allows the highly complex analyses that form the bases of my financial research that I allow Rob to share.
A trick that is often employed by the Goons is to post under the names of other people.
For example, the post above by JWR1945 was obviously not written by John Walter Russell (owner of the http://www.Early-Retirement-Planning-Insights.com site) even though that is the screen-name that John uses when posting on discussion boards.
Those who want to check out John’s research and learn about his take on the issues discussed in this thread can do so by going to his site. The materials made available there are exciting and helpful and valuable stuff indeed. John’s storehouse of research is one of the best things we have seen come out of the first seven years of our discussions.
Rob
Rob said: “John’s storehouse of research is one of the best things we have seen come out of the first seven years of our discussions.”
‘Storehouse’? It looks a heck of a lot more like a madhouse to me! I say that not to hurt him, but to help him.
For instance, below is the text list of his menu bar setup. Can you please explain to me the logic of JWR’s layout, and the reason for the apparently redundant labels (but unique content underneath), and why there is no evident logic or hierarchy to the JWR menu system?
I’d say if JWR’s skills as a numbers guy are reflected in his site layout acumen, then I can take a pass altogether! Permanently. As in “Forever”.
(The JWR menu system)
Notes
Notes
Notes
Notes
Notes Index
Short Posts
P/E10
Stock Returns
Year 30 SWR
Year 15 SWR
Scenario Surfer
Strategy Tester
TIPS Table
S&P500 Dividends
S&P500 Returns
Graphs
More Graphs
Guidelines
Foundations
May Highlights
Lucky-7 Archives
Current Research N
Current Re Index
Archives
Dividend Archives
Books
Contact Us
Letters Index
Letters
Letters
Letters
Letters
Letters
(end of menu)
Oh, and what evidence of ‘doctoring’ do you have for this site — are you saying this is not your post, requesting to be anointed a “Board General” — whatever that is! Rob, I am a guy who loves to fight for the underdog, so if you just give me evidence that this is not an accurate reflection of your original post, I will be 100% in your camp to get the record corrected.
“I want to be your Board General”
http://s162532268.onlinehome.us/Sewer/viewtopic.php?t=993&sid=ab4dd98c49a5dd813dd4b1de524ae506
I encourage those reading these words to take a look at John’s site and decide for themselves what value it possesses. My assessment is that it is the most important web site available on Planet Internet today.
I haven’t read the material at the link you provide to the “Board General” post. So I can’t say if that is a doctored version of my words or not.
I can explain the theme of the post with the title “I Want to Be Your Board General!” that I actually wrote for the http://www.NoFeeBoards.com site on the day it was shut down. Posting at that board was a wonderful experience. I met lots of smart and good people and we learned lots of exciting things together. I thought it was a terrible shame that the site was destroyed by abusive posters. The reason why it was destroyed is that too few of the board leaders were willing to speak up in support of the majority that wanted to focus on the topics of the board, not the ugliness brought to the table by the Goon posters. People look up to leaders, and when their leaders failed them, the entire board went down.
I have developed a reputation during The Great Debate of being willing to speak up in defense of the majority of community members and in opposition to the tactics employed by the Goons to destroy our boards. The purpose of my post was to give encouragement to those who are looking for a “leader” who is willing to put the interests of the community as a whole first and to put pursuit of any personal agendas far back in second place.
With leadership comes responsibilities, Caring Soul. The “leaders” who sat on their hands while that board was destroyed failed us. I think it is fair to say that I can do a better job. I am willing to take on the responsibilities involved because I think that our community deserves a lot better than what it has seen over the past seven years.
I’ve always been a community guy. I have always advocated reasonable enforcement of the published rules that apply at all of our boards. To make me the board general is to make the community as a whole board general. I think that the community should have a say in how the boards they create and build are run. I think that giving them a say is what works best in a long-term sense.
If the topic being discussed here were anything but investing, there is not one person who would consider these common-sense observations even a tiny bit controversial. Of course the community should have a say in how the boards it builds are run. Of course the site owners should honor the promises they make us when they are trying to entice us into participation at the boards.
When the question is whether we should permit effective questioning of the Passive Investing model, all of these obvious truths come into doubt in the minds of some. That’s a big part of the reason why we are suffering through an economic crisis today. We should apply the same common-sense rules that we apply in all other areas of life endeavor to our discussions of investing, in my view. These rules became conventional wisdom in all other areas of life endeavor because they make sense.
Rob
“I haven’t read the material at the link you provide to the “Board General” post. So I can’t say if that is a doctored version of my words or not. ”
Why not?
Rob: “To make me the board general is to make the community as a whole board general. I think that the community should have a say in how the boards they create and build are run. I think that giving them a say is what works best in a long-term sense.”
Do you want to be board general here, too?
If so, would you have allowed all of mine and other posts questioning you, so far?
If you have your own site and blog (which you do) and John has one at well, I’m confused as to why must you be “Board General” elsewhere? I don’t understand why if your movement is so great, and your case so strong, that you can’t just launch it in a place 100% in your control, and watch it catch on like wildfire.
Would that not seem a better use of your time than spamming boards that aren’t interested in “Lucky Seven” and John’s very bizarre site?
Rob, your link went to a dead domain parking service.
Domain servers in listed order:
NS1.SEDOPARKING.COM
NS2.SEDOPARKING.COM
I am not sure what your point was? Did you own the “Nofeeboards” domain at one time? Do you want it now? It seems that it can be completely yours for about $250.
Rob, you’ve made a serious allegation that the person who posted earlier on this thread at #64, Phoenix “doctored” your words and others.
Can you provide some support for that accusation?
“Doctored” is a word a lot like “Hocus” which is subject to interpretation, but neither one has a positive connotation, typically used to indicate trickery, deception, deceit, hiding of the truth…
I can understand why you choose that ‘handle’, but I really would appreciate you explaining why you claim the material at this link, where you seem to go ban-happy, is in anyway not an accurate depiction of the original posting. It seems completely in character with what I have seen from you so far at this site.
Sadly.
http://s162532268.onlinehome.us/Sewer/viewtopic.php?t=1009
Robert Bennett was emphatic:
“A “theory” that cannot stand up to scrutiny in a discussion held on an internet discussion board cannot work in the real world either.”
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1203105110
Here, some very smart people asked much the same thing, and got nowhere with you.
http://www.financialwebring.org/forum/viewtopic.php?p=238451#238451
Rob, please illustrate SPECIFICALLY how Lucky Seven performs against other strategies.
would you have allowed all of mine and other posts questioning you, so far?
No. If I were in J.D.’s shows, I would check out the realities for myself.
The quickest way to do so would be to go to the Bogleheads.org board or the Vanguard Diehards board, put up a post asking for comment on The Stock-Return Predictor or the Retirement Risk Evaluator, and see what happens. Once I confirmed for myself that there is indeed funny stuff going on at those board communities, I would write a blog post reporting on that and encouraging both those who believe in Passive Investing and those who do not to work together to open up these boards to honest posting on the flaws of the Passive model. That’s obviously would be a big plus for everyone writing in the investing field (since we all learn from the work done at these boards) or trying to learn about investing.
The reason why I did not bother checking to see whether the version of the “I Want to Be Your Board General” post has been doctored is that I have better things to do with my time. The fact that the person presenting the board does not even own it and that I have learned by checking that some of the materials have been doctored makes me suspicious of everything that appears there. I know what I said in the actual post that went by that title. I prefer to go by my memory of what I said than to waste time checking line by line a post that may or may not be a doctored version.
The other side of the story is that I provide a link to the doctored board at my site (at a section where I link to various resources for learning about the history of The Great SWR Debate). I have mixed feelings about doing that. I would prefer to link to a clean board. But there was lots of wonderful material presented at the SWR Research Group board and it appears to me that some of the posts presented at the board are not doctored. So my approach has been to warn people about the doctoring and to permit them access to the board via a link. When people have questions as to whether the material they find there has been doctored or not, I do my best to help out.
I believe that all who work on the internet have a responsibility to do what they can to make the entire communications medium more credible. We hurt the cause when we fail to speak out against the sorts of tactics we have seen employed by the Goons. I have spoken out on numerous occasions. I feel that I have done my part. The actual SWR Research Group board is a wonderful resource. The doctored board contains some wonderful material but there is obviously a lot of danger involved in making use of a board that you know was doctored.
I find it incredible that there are people who do not see a problem with the fact that people are presenting a doctored board. I think it is fair to say that the many community members who contributed to that board never dreamed that there would be a day when their words would be presented in doctored form and that few would speak out against this abuse. My hope is that there will come a day when we will have a consensus among leaders on the internet that this sort of thing is unacceptable, that people should be permitted to offer their honest views on investing topics and that the presentation of doctored archives (by parties who do not own the archives in the first place!) is unacceptable.
The Passive Investing dogmatists say that investing is a 100 percent raitonal endeavor. That claim is not backed up by my experience discussing these issues over the last seven years. Not by a long shot.
Rob
you’ve made a serious allegation that the person who posted earlier on this thread at #64, Phoenix “doctored” your words and others. Can you provide some support for that accusation?
Anyone who cares to can take a look at the material. The fact that there was doctoring is obvious to any reasonable person.
It is also obvious to any reasonable person that the purpose of many of these questions is not to learn the realities of stock investing, but to play games that puts off the day when the authors of the Old School retirement studies will need to make the necessary corrections to them.
I have been urging correction of the Old School studies for a long time now. A busted retirement is a serious life setback. Anyone reading these words who does not understand why the Old School studies are analytically invalid can learn the reasons why by checking out the articles at the “Retirement Risk Evaluator” section of my site. The short version is — they fail to adjust for the effect of the valuation level that applies on the day the retirement begins (the historical data shows that this is the single biggest factor influencing the safety of a retirement plan).
Rob
Rob: “I have learned by checking that some of the materials have been doctored makes me suspicious of everything that appears there. I know what I said in the actual post that went by that title. I prefer to go by my memory of what I said than to waste time checking line by line a post that may or may not be a doctored version.
The other side of the story is that I provide a link to the doctored board at my site (at a section where I link to various resources for learning about the history of The Great SWR Debate). I have mixed feelings about doing that. I would prefer to link to a clean board. But there was lots of wonderful material presented at the SWR Research Group board and it appears to me that some of the posts presented at the board are not doctored. So my approach has been to warn people about the doctoring and to permit them access to the board via a link. When people have questions as to whether the material they find there has been doctored or not, I do my best to help out.”
Incredible.
That is about the silliest thing I think I have ever heard of!
But, in accordance with your odd policy and wishes, Mr. Bennett, I hereby ask you to “Do your best,” to use your own terms, to confirm whether there is or is not doctoring in your “Board General” post, and further, to provide some examples of clearly “Doctored” posts, and your evidence as to why you make that conclusion. It seems to me that you can either do this, or else stand down with your accusations of dishonesty on the part of others, especially those providing a service by archiving the very material you find essential to refer to on your site! Do you not smell the strong odor of hypocrisy that I do?
As with my prior point, this goes directly to your believability, and since you provide no data, no specifics, all we can base our evaluation of you on is finding some evidence of consistency with what we know to be true, or inconsistency. Mr. Bennett, my own mind is rapidly being made up, and it is not complementary to your standing.
you’ve made a serious allegation
The most serious claim that I have put forward is the claim that I put forward on the first day of the discussions, the claim that the Old School retirement studies are analytically invalid. That claim has been supported by numerous big-name experts. Larry Swedroe has said that the Old School studies are a case of “Garbage-In, Garbage-Out” research. Bill Bernstein has said that anyone thinking of using an Old School study to plan a retirement would be well-advised to “ForGedDaBouDit!” Scott Burns has pointed to research showing that the the numbers in the Old School studies were off by a full 2 percentage points at the top of the bubble.
The fact that those studies were not promptly corrected when the errors in them became public knowledge is the cause of all of the ugliness we have seen in the time since. When studies that people use to plan their retirements are found to be in error, they should be corrected. That is nothing more than simple common sense.
The fact that many Passive Investing advocates have either opposed correction of the studies or have failed to take effective action to see them corrected tells a tale. It is a tale that argues for the need for a national debate on the flaws in the dominant investing model of today.
That’s my sincere take re all this.
Rob
Bennett: “Anyone who cares to can take a look at the material. The fact that there was doctoring is obvious to any reasonable person.”
I have no idea what this is supposed to mean. Consider me to be as a child, Mr. Bennett — innocent, bright, eager to learn and understand the truth, but unschoooled in your methods and what you see as apparently obvious.
So, please do take the time to walk me through the “Doctoring”, at least as many examples as may be needed to make the case. From reviewing your site, you fashion yourself as a reporter of facts, a teacher, one who is out to educate others.
That is all I ask of you.
Otherwise, I can only come to one very unfortunate conclusion, I’m afraid.
Bennett: “The most serious claim that I have put forward is the claim that I put forward on the first day of the discussions, the claim that the Old School retirement studies are analytically invalid.”
Be that as it may (and I am of an open disposition on that matter, not having investigated it), unless and until you can substantiate your very serious allegations of purposeful wrong-doing by others, made this very night, on this very board, why should I (or anyone) lift a finger to investigate any other claim you might make, or have made previously? Do you not see that the only thing a man has is his reputation?
I had seen yours was spotty, based on the words of others, but decided to treat you as a clean sheet, based only on what you do and say here. That seems tome to be a pretty square deal. One that it appears, you are going to fall short on. Pity, if your methods really did have some value, becasue it won’t be known to me — after having seen your behavior in the last few minutes, I am not inclined to believe ANYTHING you say, even if there were data — which of course, so far there is not. It makes me begin to wonder what you are really after in your voluminous and numerous posts here, frankly.
Why not just back up your own claims ,and let’s move forward? It’s a simple matter, really.
I’ll continue to report accurately what the historical data says re safe withdrawal rates, Caring Soul.
That one is non-negotiable.
Rob
Bennett: “The Passive Investing dogmatists say that investing is a 100 percent raitonal [sic] endeavor.”
Can you provide a reference for this claim, too, please?
Thanks!
I am confused as to the “out of the blue” nature of reply #89, Rob.
Have I asked you to do otherwise?
If I did not sense an intense desire to get heard on something you think is vital, I would (on the basis of that alone, not to mention the prior dialog) just dismiss you as another internet oddity. But I simply am not going to invest more energy into trying to discuss with you unless and until we can get to some basis of communication. All relationships are built on trust, Rob. It seems to me that you (for reasons I can’t understand) want to start not only at zero, but even below zero. If your case, your ‘school’, your message is really as vital as you claim, would you not want to preserve your credibility? Right here in this thread, less sanguine people would have stopped chatting with you already, and just written you off. I like to think I am more patient than most, but you stress even my normally calm disposition with these oddities.
Reading the material above reveals a “dialog” typical of those involving Mr. Bennett. He makes sweeping, verbose posts. When challenged on details regarding his financial plans, he replies with thousands of words but never actually provides new information to support his claims.
When challenges continue, he engages in spectacular and incredible personal attacks. He claims death threats have been make, the record has been doctored, etc. When challenged to provide proof of any of these, he simply continues with extremely wordy posts that provide no evidence.
They do provide humor, of course. I snorted when he claimed that posts had been doctored, but when asked how, he replied he hadn’t read them!!!!!
What is this? Does he do his social communications the same way he does his financial prognostications…with a divining rod?
“The quickest way to do so would be to go to the Bogleheads.org board or the Vanguard Diehards board, put up a post asking for comment on The Stock-Return Predictor or the Retirement Risk Evaluator, and see what happens.”
As we have established the Bogleheads board was created expressly to be free of Rob and his need to “hocus threads” and he is also banned at the Vanguard Diehards board. But Rob just can’t stand that there are two islands on the internet where people can express opinions other than his so he is always trying to find some gullible newbie to spam those forums for him with links to his site.
“The fact that there was doctoring is obvious to any reasonable person.”
Once again showing that if you don’t agree with Rob’s opinion, then you are not reasonable, not rational, or more simply, a goon. Is it any wonder that the FBI didn’t take up Rob’s cause of banishing “goons” from the internet?
Bennett: “The Passive Investing dogmatists say that investing is a 100 percent raitonal [sic] endeavor.” Can you provide a reference for this claim, too, please?
One of the most common Passive Investing claims is that “you can’t beat the market.”
For this to be so, the market price must be rational.
If the market price is not rational, then all you need to do to beat the market is to use a rational price in setting your stock allocation (investing more heavily in stocks when the market price is irrationally low and less heavily in stocks when the market price is irrationally high). That’s Rational Investing (the alternative to Passive Investing).
Passive Investors assume rational markets. Rational Investors invest in such a way as to bring about rational markets.
Market are not inherently rational. For markets to become rational, we all must become aware of the extent to which the market has become irrational and invest in such a way as to counter the irrational pricing.
Rob
A couple of things:
1. I am not taking sides.
2. Rob, passive investors do not assume rational markets. These are two different issues. Efficient markets and passive investing are not related, though there is some overlap when discussing the two concepts. Also, passive investing does not claim that you can’t beat the market. It just claims that it’s difficult to do so consistently, especially when you factor in fees and expenses. Every passive investor I know is well-aware of Warren Buffett, who has managed to beat the market handsomely.
3. User Ilum1 (in comment #92) is posting from the same IP address as the user who posted as JWR1945 in the previous two comments, and is therefor presumably the same individual.
4. Don’t you folks have anything better to do on a holiday! 🙂
You may now resume your discussion.
passive investing does not claim that you can’t beat the market.
Thanks for joining in the discussion, J.D.
I have heard Passive Investing advocates make precisely that claim on numerous occasions. Valuation-Informed Indexing is rooted in a belief that investors who look at valuations can beat the market. That’s the entire reason why it is controversial (it rejects the Passive Investing claim arguing otherwise). If Passives agree that it is possible to beat the market, why is there any hoo-hah about any of this? Why don’t we all just agree that it would be a good thing to learn as much as possible about how best to beat the market?
It just claims that it’s difficult to do so consistently, especially when you factor in fees and expenses.
To “beat the market” in a meaningful sense you obviously need to be able to do so consistently and after taking into account fees and expenses. If you can’t do it after taking into effect fees and expenses, you aren’t really beating the market, are you? So I think we are back to the starting point. The Passives are saying that you can’t beat the market (all factors considered) and the Rationals are saying that you can beat the market (all factors considered).
The historical stock-return data shows that you can beat the market if you engage in long-term timing. The data is public information. So this is a claim that can be checked.
The data shows that investors who adjust their stock allocations downward when prices go to insanely high levels and upward when prices go to insanely low levels beat those who practice rebalancing (Passive Investing) by wide margins in the long run.
This is really the entire point under dispute — whether the market price is always rational or not, whether it is possible to beat the market or not.
If the market price is always rational, the Old School retirement studies make sense. The methodology used in the studies follows logicially from a belief that the market price is always rational and that it is not possible to know in advance when the long-term market return is likely going to be remarkably low or high.
If it is possible to know in advance where the long-term market price is going, it does not make sense to say that the safe withdrawal rate is a constant number (this is what the Old School studies say).
The entire debate revolves around this question. Are long-term returns to a large extent predictable? If yes, then it obviously does not make sense to be going with the same stock allocation at all times; you want to be going with a higher stock allocation when the long-term return is likely to be good than you go with when the long-term return is likely to be poor. And, if long-term returns are largely predictable, the Old School retirement studies cannot be right. An adjustment is needed for the long-term return that applies. That is, an adjustment is needed for the valuation level that applies on the day the retirement begins.
Rob
Every passive investor I know is well-aware of Warren Buffett, who has managed to beat the market handsomely.
They are all aware of him. But many dismiss his record as luck or else claim that the typical middle-class investor cannot replicate his success.
I agree that the typical investor cannot pick stocks as effectively as Buffett. But, in the days of indexing, you don’t have to!
If you change your stock allocation in response to big price changes, you have incorporated Buffett’s key insight into your investment plan without having to pick a single stock effectively. Valuation-Informed Indexers obtain the best of Buffett (a value focus) combine with the best of Buffett (a simplicity focus). The two go together like chocolate and peanut butter!
Rob
Don’t you folks have anything better to do on a holiday!
It’s a lot worse than even those words suggest, J.D. I haven’t been able to find anything better to do for seven years running!
Yowsa!
What was it that Bruce Springstein used to holler out when he would hit the ground after jumping into the air at those big stadium concerns –I’m A Slave to Safe WIthdrawal Rates!
Rob
“One of the most common Passive Investing claims is that “you can’t beat the market.””
Not true. Someone always beats the market. The market always beats someone. The average is simply the market. The difficulty is determining the winners prior to investing.
“For this to be so, the market price must be rational.”
Not true. What does rational have to do with whether you do better or worse than it. Rather it says that it is very difficult for any individual to get the information that would make you consistently do better than the market. Why? because word gets around and everyone else wants to do it too. Every bit of secret investing sauce simply becomes part of the market. If you could ever define your investing idea to the point where someone could implement it, it too would become part of the market. If it became dominant then you’d be trying to beat yourself.
“If the market price is not rational, then all you need to do to beat the market is to use a rational price in setting your stock allocation (investing more heavily in stocks when the market price is irrationally low and less heavily in stocks when the market price is irrationally high).”
That has nothing to do with rationality. There are times with growth, momentum and value strategies all beat the market. For example, from the 90s to 2000, growth and momentum strategies did MUCH better than the market. That’s easy to see now. The harder part was knowing in 1990.
If you want to invest like Buffet, no one is stopping you. There are dozens of mutual funds based on his style and there are websites that screen individual stocks according to his style. Or simply buy Berkshire Hathaway. Unlike Bennett, Buffet’s style is documented and has actual results. Bennett talks a lot more the Buffet but people listen to Buffet because he has the results and not just talk.
“I agree that the typical investor cannot pick stocks as effectively as Buffett. But, in the days of indexing, you don’t have to!”
Buffett doesn’t jump in and out of index funds. Buffet takes control of many of the companies that he buys. If you want the full Buffet experience including Buffet’s control of the companies he buys, then you should just buy Berkshire and let him do his thing. Problem solved.
Someone always beats the market. The market always beats someone. The average is simply the market.
These words reflect the fundamental error of the Passive mindset.
The suggestion here is that there is some sort of equilibrium, that beating the market is a game of chance. That’s not so. If it’s a game of chance, it’s a game of chance in which the odds change dramatically with changes in valuations.
How many investors beat the market in September 2008, Lindsay? Looking at it from the other side, how many lost to the market in September 1982? The valuation level that applies on the day you purchase a share of the market determines whether it is going to be you beating the market or the market beating you. When the market price is rational or better, you are going to end up winners. When the market price is irrationally high, the odds are against you.
A regression analysis of the historical data shows that the most likely 10-year return on a purchase of an index fund made in January 2000 was a negative number. I think it would be fair to say that few investors who bought stocks at those prices are going to end up beating the market. But there have of course been many other times when very different prices applied and when the investor’s odds of beating the market were much better.
You’re suggeting that there is one market, that the odds are always the same. That is the Passive Investing mindset. It is that mindset that causes people to believe that there is no need to change their stock allocation when prices go to dangerous levels.
I am saying that there is not ONE market. There are different markets at different valuation levels. When the valuation level puts the odds on the investor’s side, he should be heavily invested in stocks. When the valuation level puts the odds heavily against the investor, he should not be heavily invested in stocks.
You need to have some idea of the odds before you put your money down on the table. Rational Investing is all about learning the odds. The possibility of learning the odds is taken off the table when you come to believe that there is no need to change your allocation in response to price changes. The belief that you don’t need to change your allocation is called “Passive Investing.”
Rob
What does rational have to do with whether you do better or worse than it.
It has everything to do with it.
A rational price is one that reflects the economic realities. The economic realities have been such that stocks have for many years provided an average long-term return of about 6.5 percent real. A rational price is a price that permits the investor that return. It is hard to beat that return with any other asset class. When stocks are priced rationally, it is hard to lose by investing heavily in stocks.
But how about when the price is not rational? At the top of the bubble, the price was so irrational that the most likely long-term return on stocks was a negative number. You could get an annual return a full five percentage points higher by putting your money in Treasury Inflation-Protected Securities. When you can get a higher return from a safer asset class, that’s where most of your money should be.
This is the entire point. I call the alternative model “Rational Investing” because the point of the alternative model is to learn when investing in stocks is the rational choice and when it is not. The Passives get a lot right. But the thing they get wrong is that they fail to look for rationality. The Passives assume rationality.
Assuming it doesn’t make it happen. For investors to obtain rationality in stocks, we must insist on it. We insist on rationality by withdrawing from the market when it fails to provide rationality. If we all lowered our stock allocations when prices became irrational, prices would come back down to rational levels and all would be fine. It is the Passive idea that stopped us from doing that in the out-of-control bull. We came to believe that there was no need to be concerned about whether prices were rational or not. That’s why prices rose to the most irrational levels ever seen in U.S. history.
Rationality is not automatic. Market rationality is the product of investor rationality. Investor rationality comes from us pulling back on stocks when prices get too irrational. We obtain market rationality (market efficiency is another phrase standing for the same thing) when we punish market irrationality (by lowering our stock allocations in response to it). The market is most efficient when the fewest number of investors believe that the market is by nature efficient and understand that they must change their stock allocations in response to big price swings to maintain market efficiency.
Rob
The difficulty is determining the winners prior to investing.
To pick stocks effectively, you need to be able to pick winners.
To know whether to invest heavily in a broad index fund or not, all you need to know is whether the market price is reasonable or not.
It takes a lot of work to identify good stocks. It takes about 10 seconds to look at the P/E10 level and determine whether the market is priced reasonably or not.
All investors should consider the price at which stocks are selling before putting their money into an index fund, in my belief.
Rob
because word gets around and everyone else wants to do it too. Every bit of secret investing sauce simply becomes part of the market.
IF investors are 100 percent rational.
This is the part that you keep overlooking.
If investors were 100 percent rational, everyone would run out and become a Valuation-Informed Indexer this morning and there would be no more Passive Investing. What do you think are the odds of that happening?
There has never been a time in history when all investors were 100 percent rational. There is never going to be one. You can stop worrying about it.
For so long as humans are emotional creatures, there are going to be overpriced markets. As long as you know to lower your stock allocation when prices get out of hand, you will do fine.
If we ever get to that magic place where all investors are Rational Investors and dangerous overvaluation has become an impossibility, you know what? All will still be fine. We will still all be getting 6.5 percent real on our money. Can you live with that? I can.
We are not going to do damage to the market by investing rationally, The reality is quite to the contrary. It is irrational investing (Passive Investing) that caused the out-of-control bull, that caused the stock crash, that caused the economic crisis.
Lots and lots of people are not going to steal our secrets if we invest rationally. And, if they do, that’s all the better for us. The more people who invest rationally, the better off we all are. An economy in which most people invest rationally is a stable economy. A stable economy is good for businesses, for workers, for citizens, and for investors. Rational Investing is a win/win/win/win/win, with no possible downside.
Except for the need for some of us to learn how to pronounce the three magic words. There’s always the hang-up with the three magic words.
Rob
There are times with growth, momentum and value strategies all beat the market.
And there are times when being out of the market beats the market.
That’s the idea that you won’t let in.
You are looking at various strategies for investing heavily in stocks and trying to choose among them. When all classes of stocks are overvalued, the rational thing is to be going with a low stock allocation or to be out of stocks altogether.
You don’t even look at that possibility. That’s your blind spot.
The reason why it is your blind spot is that you view it as irrational for a safe asset class to provide a higher long-term return than a risky asset class. You’re right that it is irrational. It is also irrational for investors to bid stock prices up to the levels that applied in the late 1990s. The one irrationality is the rational way of responding to the other irrationality.
Rational Investing is the investing model that accepts that investors are often irrational and explains how to invest given that reality. Passive Investing is the investing model that assumes that investors are always rational and explains how to invest given that assumption. Passive Investing works in the books and in the classrooms. Rational Investing works in the real world. That’s because in the real world, investors are often not even a tiny bit rational and the market is therefore often not even a tiny bit efficient.
Rob
Buffett doesn’t jump in and out of index funds.
Buffett doesn’t need to. Buffett possesses the skills needed to invest effectively in individual stocks. The typical middle-class investor does not. I believe that the typical middle-class investor should be invested primarily in index funds.
If Buffett were investing primarily in index funds, he would be a Valuation-Informed Indexer. Buffett has often advised investors to be greedy when others are fearful and fearful when others are greedy. That’s another way of saying that indexers should be going with higher stock allocations when prices are mouth-wateringly good and lower stock allocations when prices are dangerously high.
Benjamin Graham was Buffett’s mentor. Benjamin Graham was the first Valuation-Informed Indexer. He recommended the basic strategy in his book “Securities Analysis.” The only difference is that Graham did not recommend carrying out this strategy by investing in index funds (they didn’t exist at the time he wrote the book). Now that index funds are available to us, why should we not make use of them to invest in the way that works best? What’s the downside?
Rob
Rob: “Rational Investing works in the real world.”
Please provide ONE concrete and specific example of someone doing this, please, Mr. Bennett.
For instance, on this morning’s recording on your site, made on Mar 11, 2009, you calculated a 100P/E10 of 12 and stated that the equities market was therefore undervalued.
I’m quite curious to know what YOU did as a result of that information. Did you sell all your TIPS and IBonds, and go 100% into individual equities?
Or, did you go 80% into a single broad index fund?
OR, let’s just put it into the best possible context for you, Mr. Bennett:
For your own portfolio, how many times have you made a greater than 20% change in your Total Investable Assets, based on 100P/E10 level?
OR ANY change? Rob, after the lack of responses and the obfuscation from you yesterday, I have a decided feeling that it is “None.”
I’d love for you to use your own “moves” into and out of the market as an object lesson for those of use who do wish we could time the market as you espouse, in order to beat the averages.
Please teach us.
how many times have you made a greater than 20% change in your Total Investable Assets, based on 100P/E10 level?
It’s a rare circumstance in which a Valuation-Informed Indexer needs to make a change in his or her stock allocation. Roughly one change is needed every eight to ten years on average. I once did a test with the Scenario Surfer to see how much I could limit the allocation shifts and still obtain the benefits of the strategy. I was able to beat Passive Indexing by a wide margin by going with only one allocation shift every 13 years.
From 1975 through 1995, a Valuation-Informed Indexer would have been going with the same stock allocation as a Passive Indexer. The long-term value proposition for stocks was good. From 1995 through 2008, the Valuation-Informed Indexer would have been going with a much lower stock allocation; the long-term value proposition of stocks was poor at those insane prices. From September 2008 forward, we are back to prices where the VII investor and the Passive investor are going with roughly the same allocation.
Many people have a hard time understanding how making only a small number of allocation changes can pay off so big in the long term (it is not too unusual for a VII investor to enjoy a portfolio double the size of a Passive Indexer at the end of 30 years). It is all due to the power of compounding. Taking price into account in your allocation decisions ensures that you will be going ahead sooner or later. And, once you go ahead, compounding puts you farther and farther ahead as more time passes through the hourglass.
The beauty of Valuation-Informed Indexing is that it gets better and better and better over time. Passive Indexers live in fear of the day when the boom is going to come (we all understand on some level of consciousness that the price we pay for stocks must affect the long-term value proposition we obtain from them). Valuation-Informed Indexers gain confidence in their strategy over time because what they see appear in front of them is always in accord with what the theory says should be appearing in front of them instead of often being the opposite of what the theory says should be appearing in front of them. VII investors were not even a tiny bit surprised by the huge price crash. How many Passive Indexers can say the same?
Rob
“The difficulty is determining the winners prior to investing.
To pick stocks effectively, you need to be able to pick winners.”
Nonsense. You could pick losers and then avoid those.
“To know whether to invest heavily in a broad index fund or not, all you need to know is whether the market price is reasonable or not.”
Nonsense. You need to know whether the price will go up or down over the time before you plan to take money out, which is NOT the same question.
“IF investors are 100 percent rational.
This is the part that you keep overlooking.”
Nonsense.
“That’s the idea that you won’t let in.” … “You don’t even look at that possibility. That’s your blind spot” “The reason why it is your blind spot is that you view it as irrational for a safe asset class to provide a higher long-term return than a risky asset class.”
Nonsense. You don’t know me at all and you’re talking on and on and on about me. (Not to mention Buffet and others.) It’s just like investing in general. You don’t know any thing about it and you talk and talk and talk. You would be much better served by reading rather a book about investing rather than talking about it.
“If Buffett were investing primarily in index funds, he would be a Valuation-Informed Indexer.”
Nonsense, You don’t him either.
You talked on and on about why J.D. banned you on your blog and that hadn’t even happened yet you knew why something that didn’t happen, happened. You just talk and talk about things you don’t begin to understand.
Rob, you directly quoted this question, just as I asked it: “..how many times have you made a greater than 20% change in your Total Investable Assets, based on 100P/E10 level?”
And then promptly ignored it, as you instead wrote hundreds of generic words that did not more the dialog or information content forward one bit, not to mention failing to answer the question.
Rob, can you do just one thing in a direct, responsive fashion? Can you please answer the question as to your own changes as you apply the principles of Lucky Seven to your own admittedly unique situation? As a compromise, in case you are afraid of being misunderstood, or taken out of context, if you will please LEAD OFF your answer with the direct, clear, and unambiguous answer, in as few words as possible for you, then I pledge that I will continue the reading of any further explanation, rationalization, modification, personalization, excuses, limitations or other information that you think might be important to augment the direct, concise, truthful, and factual answer you are being asked to give FIRST.
Rob, this is not rocket science. The answer is in your capacity to provide. Continuing to never answere the questions of other, but insist on not only being offered a chance to post, but an expectation of being read and supported… well, Rob, it’s a two way street. And right now, you want it all your way. You claim to desire a national dialog on your plan? Frankly, you aren’t ready. It may be the best plan on the planet, but if you can’t respond to the very mild and mutually interested questions seen here, how do you intend to convert an actively hostile crowd, which, when I listened to your recording today, you seem to relish the idea of doing.
Rob:
“..how many times have you made a greater than 20% change in your Total Investable Assets, based on 100P/E10 level?”
You just talk and talk about things you don’t begin to understand.
I’m one of the humans too. Lindsay. I certainly think it would be fair to say that there is not one of us who knows it all.
If there is anyone who has given three seconds thought to changing his or her investing strategy solely because of something I have said, I strongly advise that person to give the idea some more thought. To proceed based on that thought would be a terrible mistake.
Perhaps we have found some common ground at last, Lindsay. We both believe that Rob Bennett’s take re all this is something less than perfect.
That’s a start.
Rob
You claim to desire a national dialog on your plan?
I certainly don’t think that the national debate should be limited to a discussion of my ideas, Caring Soul.
I believe that we need a national debate on the whole shebang. What the Passives got right, what they got wrong, what the academic research of the past 20 years says about the Efficient Market Theory, what caused the crash, how marketing decisions influence the investing advice we hear from experts, what we need to do to make middle-class investors less emotional, how discussion boards and blogs should be run to generate the best possible learning experiences for all concerned, and on and on and on.
I think we’ve got a tiger by the tale re this one. I see the idea of a national debate in which we wipe the slate clean and examine all aspects of the investing project with a fresh eye as a win/win/win/win/win with no possible downside.
Rob
[i]how do you intend to convert an actively hostile crowd[/i]
I’ve been doing this for seven years, Caring Soul. I’ve never been to any board or any blog at which anything more than a tiny number have been hostile to the idea of permitting discussions aimed at helping people learn more about the realities of stock investing.
The rub is that that tiny number is often comprised of the community members with the greatest influence — the ones who have presented studies at their web sites, or who have built calculators, or who have written books or who have formed contacts that they hope will help them in some way or who have written numerous articles rooted in a belief in the conventional model.
I don’t say it is not a problem. It is. But it is still a tiny number that we are talking about. The vast majority at every place I have been favors permitting the learning process to go forward. That’s reflected in the posting rules that apply at all of the sites. Why would the posting rules prohibit the tactics that have been used to block the discussions if the vast majority did not see a big benefit in having the discussions?
I mean, come on.
Rob
“And there are times when being out of the market beats the market. That’s the idea that you won’t let in. You are looking at various strategies for investing heavily in stocks and trying to choose among them. When all classes of stocks are overvalued, the rational thing is to be going with a low stock allocation or to be out of stocks altogether. You don’t even look at that possibility. That’s your blind spot. The reason why it is your blind spot is that you view it as irrational for a safe asset class to provide a higher long-term return than a risky asset class.”
To provide one example of how you talk and talk without knowing anything of your various subjects: we exited the stock market in early 2008. So you’ve talked about WHAT we did – which is totally wrong and then you babbled about WHY we did something that we didn’t do. Just like your rant on J.D. and so many others in the past.
Meanwhile, people keep asking you what your investing system actually is and you just never get around to answering that one because you’re too busy making up other people’s motivations for things that didn’t even happen.
we exited the stock market in early 2008.
Are you willing to tell us how you came to make this decision, Lindsay?
The Passives would argue that there was no way for you to know in advance what was going to happen. I agree with the Passives that short-term timing does not work. So if you say that there was something in particular that happened in early 2008 that caused you to get out, I will express the same skepticism that acting on this sort of information can reliably yield better results. However, I would add that there was a factor that applied all the way from 1995 through 2008 that you could have used to know to lower your stock allocation for a time – the insanely high prices that applied during those years. If you say that you just happened to come to understand the importance of long-term timing in early 2008, I would say that you were both smart (to see this) and lucky (to have come to see it just before the huge stock crash).
Rob
Rob, #113 is a bizarre non-reply reply.
If there is some reason you can’t answer the question:
“..how many times have you made a greater than 20% change in your Total Investable Assets, based on 100P/E10 level?”
just address that directly. Why are you constantly trying to drive the dialog back to some supposed procedural issues that all other finance sites had?
If I did not know better,I’d say you are TRYING to get kicked from here. Are you really just an elaborate troll, Rob, as some claim?
I had hoped not.
people keep asking you what your investing system actually is and you just never get around to answering that one
I’m turned off by the word “system.” I don’t propose a “system,” I propose a model.
I have described the model on thousands of occasions.
The model is to apply common sense to the investing project, to invest rationally. This is why I call the model “Rational Investing.’
In ordinary circumstances, there would of course be zero “controversy” associated with the idea of investing rationally. All of the “controversy” arises from the fact that there have been hundreds of millions of dollars directed to the promotion of Passive in recent decades. People have come to believe that there must be something to the idea that it is okay not to adjust your stock allocation when prices go to insanely dangerous levels. The reality is that there is nothing to it. As Rob Arnott said in a recent article, the conventional investing wisdom of today is the product of “myth and urban legend.” There is no “there” there to the idea that you don’t need to adjust your stock allocation in response to big price swings.
When we make decisions to buy houses, we take into consideration the price being charged. It’s the same with cars. It’s the same with comic books. It’s the same with bananas. If we were rational when it came to investing, it would be the same with stocks.
That’s it. That’s the model (or, if you insist, the “system”).
It’s as simple as simple can be. But the idea has far-reaching implications. Once you accept the need to invest rationally, all of the things that hold you back when trying to assure yourself that there is no need to change stock allocations in response to big price changes no longer apply. When you invest rationally, it becomes possible to calculate the safe withdrawal rate accurately. When you invest rationally, it becomes possible to retire many years sooner. When you invest rationally, you don’t have to kid yourself about whether a huge stock crash is on the horizon or not. When large numbers invest rationally, we protect the economy from experiencing the economic crises that Passive has caused on every occasion in history when it has become popular.
It’s a better model than the now-dominant model in every possible way.
Or at least so Rob Bennett believes.
Rob
“Are you willing to tell us how you came to make this decision, Lindsay?”
Rob,
You first. You’ve spent 7 years telling us how your undefined system is better than anything the human mind can imagine (your words). So why don’t you define it for us, now?
Based on what I’ve read, I think I am justifiably concerned that if I were to explain our system, you would simply assert that our system is your system and that we learned it from the great Rob Bennett, master typist. After all, you just told us that Buffet would use your system.
If there is some reason you can’t answer the question:
There is. For many years, I followed a policy of being up front about my personal investing decisions. Many other community members who favored the idea of permitting honest posting on the flaws in the Passive model did the same. I have seen the Goons exploit our willingness to share personal details with our fellow community members on tens of thousands of occasions. There are now tens of thousands of posts that can be accessed on the internet that contain false statements of my personal financial realities, false statements that I have tried to correct on thousands of occasions and false statements that have never once been corrected by the Goon posters. It helps no one for there to be thousands of false statements about my situation and about the situations of the others who have expressed a desire that honest posting be permitted. So I no longer provide the Goons the material they need to continue to populate the internet with these long-known-to-be-false statements.
I believe that there are responsibilities that come into play when someone opens a blog or a discussion board or elects to post to one or the other. One of the responsibilities is to address situations like the Campaign of Terror, a situation in which a small gang of thugs has taken it upon themselves to mislead large numbers of people about issues that affect their financial futures in very serious ways. I believe that there will come a time when sincere believers in both the Rational model and the Passive model will work together to solve this problem. At that time I will again feel that I can share the details of my personal financial situation in good conscience.
There are all sorts of ways in which everyone who uses the internet to learn about the investing realities suffers because of our failure to take effective action re this matter for seven years now. I feel that it is fair to say that I have done all that I could. I first spoke out against the abusive posting on the afternoon of May 13, 2002. I have in the time since spoken out more frequently than any other figure involved in the discussions and in stronger language than any other figure. I can do no more and I can do no less.
Why are you constantly trying to drive the dialog back to some supposed procedural issues that all other finance sites had?
I of course do no such thing. My aim from the first day has been to discuss and learn about the substantive topics. The problem is that the safe withdrawal rate is a mathematical calculation. When someone learns that he has gotten a mathematical calculation wrong, he needs to correct it. If he fails to do so, he has no choice but to engage in the sorts of tactics we have seen evidence themselves on this thread. I have never argued that the Old School studies should not be corrected. I have always urged that they be corrected and that every single community member (Passives and Rational alike) work together to see that the corrections are made as soon as is possible. For the good of every single community member (including the leaders of the Campaign of Terror).
We can never avoid the procedural matters for long because they are the primary source of all the confusion and nastiness. Once we act on the procedural questions, all that we have in front of us is a huge Learning Together experience. I am all for putting the procedural problems to rest.
But I am not king of the world, Caring Soul. I do not make the decision for others as to when to take action. That’s for the others to decide. I urge them to take action. That’s as far as my influence extends.
Rob
[i]You’ve spent 7 years telling us how your undefined system is better than anything the human mind can imagine (your words). [/i]
What I say is that it is not possible for the rational human mind to imagine a scenario in which it is not a good idea to take the price of something you are thinking of buying into consideration when making the decision as to whether to buy that thing or not.
I stand by that claim. I say that no investor should put $5 into stocks without first coming to an understanding of how valuations affect long-term returns. The valuation level for stocks is the price tag attached to the thing you are buying.
I of course understand that there are many smart and good people who say otherwise. My job is to tell you what I believe. I believe that price matters.
Rob
“Why are you constantly trying to drive the dialog back to some supposed procedural issues that all other finance sites had?”
“I of course do no such thing.”
You just did it again.
Rib: “I believe that there will come a time when sincere believers in both the Rational model and the Passive model will work together to solve this problem. At that time I will again feel that I can share the details of my personal financial situation in good conscience.”
So you can’t “tell” any of the specifics of how you personally apply your Lucky Seven method to your own finances, unless and until there is a mass conversion to your non-system-system?
Hmmm.
Good luck with that, Rob. IT sounds a lot more like an ego-driven cult than anything finance related to me, but everyone can make up their own mind.
It seems to me you could have just said “I refuse to answer the question” rather than writing four of five posts obfuscating and redirecting before you finally took my offer to come up with some excuse for not answering directly. I am not sure that I buy it, but again, others may draw their own conclusions, I’m sure.
You just did it again.
No, you once again responded with hostility and I once again pointed out how that interferes with your ability (and the ability of many others too — given the failure of people in positions of influence to take effective action re tactics you have employed) to learn about the realities of stock investing.
I can respond to questions. I cannot do anything to address your emotional resistance to hearing about the realities and to discussing them in a civil and reasonable and warm and friendly way. That’s an inside job, Lindsay.
Rob
but everyone can make up their own mind.
Now you are talking my language, Caring Soul.
We are soul brothers re that one.
Rob
Rob was nice enough to say: “Now you are talking my language, Caring Soul.
We are soul brothers re that one.
Rob”
If that’s true Rob, and I hope that it is, then why not please extend those three little words “I was wrong” to Lindsay, since in post #123, in my opinion, you have improperly accused her (him?) of hostility. I have seen no hostility whatsoever in their posts, and frankly, Rob, it is becoming a bit of a chore to keep my own normally flat demeanor from appearing riled, since you seem to excel mostly at driving conversation into a big loopy circle, revolving around your own past seven years of wandering from place to place subsequent to bans at each locale you light upon. I’m not saying that there might not be some hard core band of people following you with an axe to grind. I am trying to concede every benefit of every doubt towards you, in an effort to get the grist from the Rob Bennett Lucky Seven grinding mill. I do know, however, that it is certainly a rarity to see a site dedicated exclusively to documenting one individual’s historical travels around various internet discussion boards. And, as remarkable as *that* revelation was, there was one waiting for me that was even more unexpected: that you are the most active participant there, and that you apparently have unfettered access to post — with none of your offerings appearing to be removed. Is that true, Rob? It seems curious then that you have your own site, JWR’s site, this “fan” site (!), and all those other sites that you were eventually asked to leave, and yet you feel you still haven’t been given a proper airing, even after being given what appears to be a free hand here and at other recent finance blogs. What exactly, Rob, is it that you need beyond what you have been afforded before you can come forth with the particulars of your finance plan, and how they apply to your own situation? Because, as I said earlier (and I hate to repeat myself, so I will not do so again), you are not at all ready for a ‘national dialog’ if you cannot even convince the ‘friendlies’. But have heart, some of the best ideas had to go back to the hanger for retooling, so perhaps you will refine and perfect Lucky Seven yet, but for now, don’t you think it is not quite ready for prime time?
I suppose this mmight well be my final comment to you, Rob, since we seem to be getting nowhere. You told Lindsay: “I can respond to questions.”
No, Rob, in fact, that is among your most severe problems, speaking as someone who is wanting to give you constructive feedback. You seem to regard each new question as merely an opportunity to launch into some rhetoric that you polished long ago, but that is largely unresponsive to the question being put to you.
People who post on finance blogs are maybe not ultra-sophisticated, Rob, but neither are they ignorant, or children. They generally either already have taken a hand in directing their own financial affairs, or are preparing to do so, so they are not likely to be satisfied with circular reasoning and non-specifics surrounded with a lot of words. People enjoy short, insightful, direct responses. Suze Oreman and Dave Ramsey made their bones on this formula — so much so that they occasionally field criticism for the other sin — one of giving advice with incomplete information. But for the most part, they dispense relatively sound, but always direct and responsive feedback to questions. They do not launch into a defense of some historical argument that is long forgotten (or never heard of!) by current viewers. If I were you, I’d take note of that, and consider whether that would not be a better approach for adoption of my own ideas.
You know, if you look way, way, way, way up in the comment thread, there was actually some useful discussion going on. It has since been hijacked by what is obviously a fight that has been going on for years. I guess the only way to avoid the bickering is to unsubscribe to this thread. I hadn’t done so thus far in the off chance that interesting and helpful discussion would return to this thread, but I think at this point it’s safe to say that this discussion has been derailed completely and anyone with anything helpful to say has long since left. The discussion that remains is ego-stroking for the author and annoying to everyone else. I come here for good financial discussion, not immature ad hominem attacks and recounts of irrelevant “history”.
Rob, my advice to you is to stick with your primary point and that alone: that price matters when purchasing stocks, and any other strategy will result in bubble mania. I myself brought this concern up in an email I had sent to JD a long time back:
“There is one other very big outstanding question I have. The Bogles of the world say that we should invest in index funds. I agree and do this. However, if everyone moves from a cash-based retirement strategy and instead invests in funds that track, say, the S&P 500, will this create a S&P 500 “index bubble”? My gut feeling is that it will, but I am not smart enough to know for sure. Mass retirement investment in the financial markets is uncharted territory, and just like the day trading craze, it has the potential to have some undesired side effects.”
Fighting with these people, whatever their motivations and whatever your motivations, is a waste of your time as well as everyone else’s time. Just ignore it, unless you’re banking on the “controversy” bringing you additional traffic.
@Independentoperator
Thanks for saying what most of us that have observed this cat fight has been thinking. My e-mail box was full of useless postings and had to be purged.
As to your question, if you look at the actual data on how much $$ is in mutual fund retirement accounts versus the whole market you see it is large enough to move the market in the short term. Especially when you have large hedge funds trading on momentum to reinforce any movement. You would also note that the net outflows from mutual funds causes the managers of said funds to sell stocks into a bear market also reinforcing the market direction and solidifying real losses. So what we have is an echo chamber amplifying movements [it also happens in reverse creating bubbles].
Personally I watch in amazement when some stocks I own [I don’t believe in mutual fund investing index or otherwise] move 4-5% in a day, both up and down, based on nothing other than general stock market movements. I have had to reorganize some of my sell strategies to account for this incredible daily variation!
Will there continue to be bubbles along the line you suggest [S&P 500 index bubble]? Yes, there will be. That is why price matters and Mr. Bennett is on to something important. Anytime you unhinge price from the reason to buy you are going to get irrational movements [both ways]. An intelligent investor, as Ben Graham has pointed out, would be foolish to not account for this and take advantage of what is known!
there was actually some useful discussion going on
I agree with you, Independent Observer. I think as a general rule that it is better to focus on the half of the glass that is full rather than the half that is empty. Thanks for joining in and thanks for offering that encouraging comment.
It has since been hijacked by what is obviously a fight that has been going on for years.
That’s also a fair comment.
I guess the only way to avoid the bickering is to unsubscribe to this thread.
I don’t agree with this one at all. The best thing for all interested in fruitful discussion to do is to make it known that they don’t like the nasty stuff. J.D. and all other blog owners and all other site owners want to host discussions that help their readers learn. Let them know how you feel about this stuff and they will listen and take action!
The Goons of course also know how most ordinary people respond to this sort of thing. They have studied what works for those trying to destroy useful discussions and what you see before you evidences what they have learned gets the job done most effectively. They have learned that 90 percent of most communities will tune out a discussion if they just inject enough poison into it. So that’s just what they do. When all the people who could make great and helpful and valuable contributions tune out, the Goons dominate. That’s of course wonderful from their perspective but bad news for all the rest of us. Checking out is not the only option. There are many options available to us all that are far more constructive and positive than that.
I think at this point it’s safe to say that this discussion has been derailed completely
Only if you and any others with an interest and ability to make constructive contributions elect not to do so, Independent Observer. It’s up to the humans. We have the power!
and anyone with anything helpful to say has long since left.
A lot have left. But there are new opportunities at news places every day of every week. The internet is a big place.
The discussion that remains is ego-stroking for the author and annoying to everyone else.
I don’t know who you are making reference to when you refer to “the author,” Independent Observer. Bill Schultheis is the author of the blog entry. His last comment is a ways back and I certainly don’t think it would be fair to say that he engaged in any ego-stroking. I hope that you are not saying that I am doing so. That’s certainly not my intent. My intent is to respond to any questions put forward that make even a lick of sense for the benefit of anyone listening in that possesses a sincere desire to learn about the subject matter. I don’t want anyone to feel intimidated by the tactics being employed by the Goons. I want to set an example by responding to (halfway) legitimate questions with civility and intelligence and hope that some others with a sincere desire to learn will feel comfortable enough to join in and help us all out. I don’t say that we are not dealing with a difficult situation here. But I think it is fair to say that, given the circumstances, this is the best way to proceed.
I come here for good financial discussion, not immature ad hominem attacks and recounts of irrelevant “history”.
I think it would be fair to say that you speak for at least 90 percent of the readers of this blog, Independent Observer. It wouldn’t shock and amaze me to learn that it is 98 percent. Use that.
Rob, my advice to you is to stick with your primary point and that alone: that price matters when purchasing stocks, and any other strategy will result in bubble mania. I myself brought this concern up in an email I had sent to JD a long time back
I am glad to hear that you made that point, Independent Observer. I think it is indeed a very, very important point.
However, I am not so sure that it is such a good idea to make only that one point and not be willing to respond to questions about the many implications that follow from that point. There are many people who are experiencing genuine confusion about the issues under discussion in this thread. I don’t think it is reasonable to expect those people to accept the importance of that point unless those of us who see the significance of it are willing to take at least a stab at responding to their many good questions. I feel better knowing that I have made the effort.
If everyone moves from a cash-based retirement strategy and instead invests in funds that track, say, the S&P 500, will this create a S&P 500 “index bubble”?
Of course it will. This is simple common sense. We have just experienced the greatest and most dangerous of all bubbles ever experienced in the history of the United States. That’s why we are now living through what may in time become the worst economic crisis ever experienced in the history of the United States.
When we made a decision as a society to impose on workers the task of financing their own retirements, there were responsibilities that came into play. One of those responsibilities was to warn middle-class investors of the dangers of Passive Investing (staying at a single stock allocation regardless of how high prices go). We have failed in that responsibility. We allowed millions of dollars to be directed to promoting the Passive Investing “idea” and we are now suffering the consequences. It is well past time for some responsible people to step forward, explain what has happened to the millions who have lost so much of their retirement money, and help them to learn what they need to know to insure that nothing like this ever, ever, ever happens again.
Fighting with these people, whatever their motivations and whatever your motivations, is a waste of your time as well as everyone else’s time.
I’m not fighting with anyone, Independent Observer. As I note above, my voice is the strongest in the community urging that action be taken to bring the nonsense to an end and to open all the boards and blogs to honest and reasoned and civil discussion of the critically important investing topics. I oppose the Campaign of Terror. That’s been so dating back to the first day of the discussions going back more than seven years now.
Just ignore it, unless you’re banking on the “controversy” bringing you additional traffic.
I can assure you that there is little traffic to be gained by explaining the realities of stock investing at a time when there has recently been hundreds of millions of dollars directed to the promotion of Passive Investing.
But I don’t see how “ignoring” it is going to accomplish any good. For middle-class investors to regain confidence in the markets, they are going to need to learn the realities. If middle-class investors do not learn the realities and regain confidence in the markets, there is a good chance that we are going to see the entire U.S. economy go over a cliff. What saving or investing advice makes a lick of difference in those circumstances?
My view is that we are all in this one together, Passives and Rationals, Old Schooler and New Schoolers, early retirees and old-age retirees. The economy is a common resource, like the environment. When we permit it to be destroyed through the promotion of reckless investing strategies, we all suffer the consequences. We all need to reflect on the meaning of the word “crisis” and act accordingly, in my view.
Rob
Thanks for saying what most of us that have observed this cat fight has been thinking. My e-mail box was full of useless postings and had to be purged.
I am grateful for the positive contributions that you and Bill and J.D. and Independent Observer and a good number of others have put forward, Dave.
Have you considered sending an e-mail to J.D. asking that he take effective action to bring the Campaign of Terror to a complete and total stop? I think it is fair to say that he possesses the influence needed to do just that. And I think it is fair to say that there are many thousands of people at discussion boards and blogs who would be singing his praises for a long time if he did so.
I have urged J.D. to take action in several e-mails.
How many others have done so?
How do those others expect that we are going to solve this problem and win the right to engage in the discussions we all want to engage in if so few among us are willing to take that simple step?
Some have come to believe that discussion on the internet is free. I think it would be fair to say that that is not entirely so. The price that we pay to tap into the wonderful benefits that follow from the discussions that appear when we enforce reasonable guidelines for how the discussions are to be conducted is that we all need to be willing to walk up to the front of the room and call out the people who are trying to pull us into the sewer.
Take it or leave it, that’s my sincere take re all this. It is a take informed by my experience of sitting in a front-row seat at this show going back to the morning it began, May 13, 2002. Thousands have expressed a desire for helpful and reasoned and warm and friendly discussions. I think it would be fair to say that too small a percentage of those thousands have been willing to take the time to send an e-mail insisting (not asking!) that the people who need to take reasonable steps to make it happen do so.
We all benefit from the discussions. We all have a role to play in insuring that the reasonable rules that are needed to ensure that they take place are enforced in reasonable ways.
Rob
Rob said
“Have you considered sending an e-mail to J.D. asking that he take effective action to bring the Campaign of Terror to a complete and total stop? I think it is fair to say that he possesses the influence needed to do just that. And I think it is fair to say that there are many thousands of people at discussion boards and blogs who would be singing his praises for a long time if he did so.
I have urged J.D. to take action in several e-mails.”
That does it for me.
I commonly read this site, but no longer. Rob Bennett has completely taken it over and filled it with blithering.
He states that he has a save-the-world plan for investing. He just cannot or will not provide any specifics.
When questioned, he repeats meaningless statements, then accuses the the questioner of being irrational or dishonest. He is, simultaneously, both nasty, passive-aggressive, and uninformative.
Now, he reveals that he’s been trying to get J.D. to take “effective action” against his questioners. I guess that means he wants people that disagree with him to be censored or banned. At least that’s consistent with his behavior on other sites, where he has tried to get the local police, the FBI, and congress to suppress his critics!
WOW.
That’s it. I just erased my bookmark to this site.
“I have urged J.D. to take action in several e-mails.”
Thank you for admitting your usual pattern in public. Usually only the site owners know about these emails.
“How many others have done so?”
I have not asked J.D. to do anything about you, Rob.
If no one volunteers, then I guess it’s confirmed once again that the “Campaign of Terror” is just you, Rob.
rob is a troll. he is like a conspiracy theorist. he holds something of little value (the investing model he invented but cannot implement for practical uses). he believes a small group of ppl are censoring him.
the other guys are chasing after his digital footsteps for fun and flaming. they say they’re doing a public service defrauding rob and his useless ideas, but in reality, they’re part of the process of destroying blogs and msg boards. they can ignore rob’s posts like most ppl are, but instead, they put organized efforts to chase him and make rob spit out million more of words.
then there are the ignorant newbie third parties. In this case, Dave Shafer. No, Dave, Buffet did advocated index investing for ppl who can’t pick individual companies to invest in with as much focus as he does. please read your books right, he believes any regular person can invest as well as he does as long as they are focused in it as much as him, but he does not believe everyone can have that focus and discipline to the end. Now, ppl like Dave, put themselves on the frontline and this encourages the above two trolling parties to continue.
the most unfortunate of all would be ppl like JD and bill, who put money and effort into setting up stages for these trolls to act on.
JD, please put like a pop up ad on this thread or something. if these ppl have to flame each other at your expense, at least let yourself make some money off that. I’ve been reading your blog for months and I quite like it, please dont let them take it away 🙁
Yuck.
There are responsibilities that come into play when someone opens a blog dealing with personal finance topics.
My sincere take.
Rob
Elitie seems to thing I am some Bennett flunky. But the facts are that I don’t believe in mutual fund investing, index or active. I invested that way early on, but over 10 years ago made a decision to go another way [individual stock selection]. I have done much better than index funds for the last 10 years [whether you choose to believe that or not is irrelevant to me]. What I was responding to was the idea that price matters. And on this Buffett and just about every successful investor agrees with Bennett and myself. Price does matter.
But the real question is are you satisfied with the results of your investment philosophy. For the Bogleheads that means for the last 10 years their average return is -2.56 [S&P 500 fund] or $10,000 invested 10 years ago is now worth less than $8K! So they have to see 27% returns to get back to even from this point. If this is OK for you, then there is no conversation. If it is not, then there is a conversation. Perhaps the coffeehouse portfolio might be a place for you to slightly raise your returns to an acceptable level [for you]? But, if not that, then you might want to consider Bennett’s ideas. And if that isn’t your cup of tea, then you might want to question the basic invest in index funds philosophy.
“then there are the ignorant newbie third parties. In this case, Dave Shafer. No, Dave, Buffet did advocated index investing for ppl who can’t pick individual companies to invest in with as much focus as he does. please read your books right, he believes any regular person can invest as well as he does as long as they are focused in it as much as him, but he does not believe everyone can have that focus and discipline to the end.”
Not exactly what Buffett says. The point of index mutual funds is diversification. Buffett on diversification:
“Diversification is protection against IGNORANCE. It makes little sense for those who know what they are doing.” and “Wide diversification is only required when investors do not know what they are doing.”
So when he suggest folks invest in index funds, he is acknowledging the fact that most people are ignorant and do not know what they are doing when it comes to investing!
But behind your name calling, is a truism. If you choose to remain ignorant of investing [for whatever reason] then you shouldn’t speculate in stocks.
Buffett also insists, “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”
Now what is Buffett ultimately telling us here. I think he is telling us that most people should not be investing in the stock market, index fund or not.
That is my opinion, you are welcome to reject it. But the data on actual returns real people get [as opposed to theoretical returns] demonstrates that the vast majority could do better investing in much safer categories that range from bank CDs to Treasuries to cash value life insurance.
Unfortunately, Wall Street and the government has conspired to strongly encourage workers to invest in mutual funds inside 401ks as a retirement savings account. As a result of the change from defined benefit retirement accounts managed by professionals to individually managed 401k style retirement accounts we will soon see massive senior poverty. It is my contention that most people can’t afford to remain ignorant of investments, which is a by-product of Bogle’s work and insistence on buy-and-hold index fund strategies.
Again, the proof is in the numbers. When you look at your account are you happy with your progress? Are you going to have to live on what you accumulate in these accounts? [or do you have a defined benefit pension to live on?] Only you can adjudicate those questions and come up with the proper answers for you. You might want to show some humility and not call people ignorant based on your limited understanding of investing and what you have decided is proper for your particular circumstances.
Dave,
I think the reference to your ignorance above was only meant with respect to Rob, AKA hocus. He always gets some mileage out of people who jump in like you and try to find some relevance in his ramblings. I’ve seen several people do this over the years and they usually just ended up embarrassed in the end. For the record I was once an ignorant newbie with a different passive-aggressive troll in a completely different subject in a different place. I’m not proud of it but now I understand that that’s how it works and that’s why they’re always trying to pop up in new places looking for fresh meat. (Rob even flat out said once that he was looking for troops to go back and take control of the first forum that banned him.)
As for Buffet, it’s strange because I get completely different things out of him than you do. He recommends index funds routinely. His recommendation that you shouldn’t be in the stock market if you can’t tolerate a 50% loss is sound and also should really be obvious. (But don’t forget asset allocation – it’s 50% of your stock allocation – not the works.) I think your comment about Bogle is also misplaced. Bogle has written about the flaws and greed in mutual funds and 401Ks. Bogle, like Buffet, has written on risk-tolerance and asset allocation. Your risk tolerance appears to be low based on your comment about not being in the market. That’s fine.
There seems to be a wider problem though that people simply don’t care about the future until it happens. Just look at all the debt individuals and the country has. Do you think people don’t understand something as simple as debt? I think they simply chose to put off caring until it completely bites them. I know people in their late 50s who simply never contributed to their 401ks and say the idea of investing is depressing because they have no money to invest. Then they whip out their Iphones and show you the cool new apps they just bought.
By the way, we are happy with our progress but we started paying attention when we were young. One of Harry Browne’s basic rules of investing is that investing won’t make you rich. That is a function of your career. Only a very few lucky people get rich investing and it won’t be you. So work hard and save right from the start. (And don’t buy the snake oil.)
But this is probably a subject for a different place. I cut and pasted this page into Word and it says “Page 65”. Wow! And it’s mostly just nonsense!
the vast majority could do better investing in much safer categories that range from bank CDs to Treasuries to cash value life insurance.
My view is that no one should invest $5 in stocks until he learns that valuations affect long-term returns and comes to understand the implications that follow from that reality.
At the “Today’s Passion” feature of my site today, I have a link to an interview in which Andrew Smithers is quoted as saying “It is sad the the idea that price doesn’t matter should ever have become seriously considered.” I very much agree. That comment is in tune with the recent comment by Rob Arnott that today’s conventional investing wisdom is the product of “myth and urban legend” and Buffett’s recent comment that the academic theories that support the Passive Investing model are “nutty.”
We have made a huge mistake. We need to get about the business of fixing it.
Unfortunately, Wall Street and the government has conspired to strongly encourage workers to invest in mutual funds inside 401ks as a retirement savings account.
Because of this reality The Great Mistake ended up causing 10 times the damage that it otherwise would have caused. The good news is that the damage that has been done to millions of retirement accounts may generate the political pressure we need to see to begin making reasonably accurate retirement planning information available to middle-class investors.
And, once large numbers learn what works in retirement planning, realistic investing advice on a host of other questions will be soon to follow.
Rob
I think the reference to your ignorance above was only meant with respect to Rob, AKA hocus.
Double Yuck!
Rob
As for Buffet, it’s strange because I get completely different things out of him than you do…. I think your comment about Bogle is also misplaced.
Both Buffett and Bogle have put forward numerous self-contradicting statements on the effect of valuations on long-term returns.
As I noted above, Buffett recently described the academic theories that support Passive Investing as “nutty” (this is consistent with statements he has been making for many years). But there are also statements available from him in which he appears to endorse Passive Investing. Those statements can usually be interpreted in a different way by the ultra-sophisticated. But I have seen many middle-class investors interpret words put forward by Buffett as an endorsement of Passive Investing. So many are taking the statements at face value and suffering the negative effects of doing so.
Bogle has put forward so many contradictions that it is impossible to make sense out what he really believes about valuations. I view Bogle as the Godfather of Rational Investing (the model rooted in a belief that valuations matter) — it is Bogle’s explanation of where stock returns come from that first got me on the path that I am on today. But many of course view him (quite understandably) as Mr. Passive Investing. I have seen many long threads at the Vanguard Diehards board where people with totally opposite investing viewpoints both point to Bogle as their inspiration. When so many cannot figure out where the guy is coming from, it’s not their fault but the fault of the guy making the statements that lend themselves to so many wildly different interpretations.
Are these guys investing advisors or politicians?!?!?
I think that the answer is that they see themselves as being a bit of both.
A long-term focus is what works in investing. Valuations are of critical importance in the long term. I believe that that is why both Buffett and Bogle often make reference to the importance of valuations when giving investing advice. Both want to give good advice and that means focusing on valuations.
However, we all have a Get Rich Quick impulse that makes us want to ignore the valuations factor when prices are sky high and investing in stocks is super-dangerous. “Experts” who tell investors what they need to hear rather than what they want to hear during a time-period when stocks are at the sorts of price levels that applied from 1995 through 2008 do so at their peril. Both Buffett and Bogle also want to please their listeners. I believe that is why both also have put forward statements encouraging Passive Investing.
Anyone giving advice in this area faces competing pressures — what works in the long term is not at all popular at times when stock prices are sky high. I believe that the answer is to educate the general public about the fundamentals of how stock investing works in the real world. Once people came to understand the price that is paid for ignoring valuations, I believe that the experts would feel much less pressure to spin things in support of the Passive Investing approach.
It’s a Catch-22 that we face today. We can’t tall straight until most middle-class investors understand the realities. And most middle-class investors will not come to understand the realities until a few of us work up the courage to talk straight.
Rob
Like I said before, if you like Buffet, there are funds, stock selector sites, etc. that will let you invest like him. Or just buy his shares. If you’re not so in to him, then don’t. This is not hard. Boiling Buffet down to single word quotes like “nutty” is silly and given your history, probably totally out of context and misleading.
I really don’t worry about Buffet myself. I just mentioned his frequent endorsement of index funds to give a little more balance. I care even less as to motivations that you want to make up for people you don’t know. As we already saw with J.D. on your blog, you’ll assign nasty motivations to people you don’t know before you even know what they did (or didn’t.)
Boiling Buffet down to single word quotes like “nutty” is silly and given your history, probably totally out of context and misleading.
Here’s a link to the Wall Street Journal article quoting Buffett:
http://blogs.wsj.com/marketbeat/2009/05/02/buffett-and-munger-stay-away-from-complex-math-theories/
Juicy Excerpt: “There is so much that’s false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that’s a goal you should reasonably hope for…. The famous physicist Max Planck was talking about the resistance of the human mind, even the bright human mind, to new ideas…. And he said science advances one funeral at a time, and I think there’s a lot of truth to that and it’s certainly been true in finance.”
Rob
From the article: Mr. Buffett: “There is so much that’s false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that’s a goal you should reasonably hope for.”
Um yeah. Given that we just had a meltdown due to the use of complex derivative instruments that no one can value – I’d have to agree. See, he DOES sound reasonable in context.
Since most people will not have time to read all this, here is my quick summary of Rob’s views:
“yucky.”, “yucky junk”, “Yuck”, “Double Yuck!”, “poison”, “nasty stuff.”, “destroy”, “Goons dominate”, “intimidated”, “Campaign of Terror”, “dangers “, “suffering “, “fighting “, “go over a cliff”, “destroyed “, “reckless”, “smear campaigns to destroy”, “Goons have burned numerous boards to the ground”, “watched Goon posters burn it to the ground”, “watched it virtually burned to the ground”, “rein in the Goons”, “Goon posters that congregate at the boards”, “these sorts of tactics”, “Goon posting tactics”, “the Goon element”, “the Goons assume dominance”, “ugliness”, “Goon-leaning posters”, “Goon tactics”, “Goons have always been unwilling to listen” , “relentless attack strategy”, “behavior of the Goons”, “degrading and humiliating”, “site administrators who are unwilling to honor their promises”, “protect us from the Goon tactics”, “protect us from the ugly stuff”, “they favor a ban on honest posting”, “abusive stuff”, “abusive posting”, “people who post abusively”, “those who have posted abusively”, “battle”, “abusive comments”, “intimidate”, “intimidated by the ugliness”, “rein them in”, “temptation to post abusively”, “the abusive posters”, “who have posted abusively”, “considered abusive”, “banned”, “great financial ruin”, “imperiled the entire economy”, “ban on honest posting”, “honest posting on these matters be permitted”, “honest posting”, “the ban on honest posting”, “they favor a ban on honest posting”, “Morningstar ban honest posting”, “in which a ban on honest posting”, “a right to post their honest views”, “if honest posting on valuations-related topics is permitted”, “a result of the ban on honest posting”, “dogmatists”, “dogmatists say”, “oppressive dogmatism”, “stubborn dogmatism”, “dogmatists want us to give up what we can learn”, “protect the dogma”, “give up the dogma”, “dogmatists”, “dogmatism is hurting us all”, “dogmatists”, “dogmatists to insist”, “Imposing limits on the extent of abusive posting”, “the poster engaged in abusive posting”, “insist that effective action to rein in the abusive posting”, “something be done about the abusive posting problem.”, “protect us from abusive posting”, “a good number who favored the use of abusive posting”, “protect us from the abusive posting tactics”, “the abusive posting problem”, “destroyed by abusive posters”, “speak out against this abuse”, “I first spoke out against the abusive posting”, “rather than the abusive posting employed “, “trying to pull us into the sewer”
I could have gone on but I have stuff to do. Funny thing is that this is the same summary I could have given 5 years ago. Rob will probably consider me using his short quotes in the same way that he uses short quotes from others to make his point to be “abusive”. I can live with that. Anyone who interacts with Rob for long will eventually find themselves on the abusive/goon side of the population.
You mentioned Rob’s rhetoric being interchangeable if taken from five years ago, Lindsey — I believe you are correct, based on what I see here — a post from that very time frame, where Rob is even banning himself. Now, that must have been pretty bad! I did not go back to check, but something tells me he likely did not even wait the self-prescribed two months prior to re-appearing.
😀
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1077496804/1#1
We are in agreement that Buffett sounds reasonable, Lindsay.
You suggest that he is saying that only derivatives are “nutty.” That’s not right. He says that “modern investing practice” is nutty. The derivatives are just part of that.
Many are saying that the bankers caused the economic crisis. What is it that they are supposed to have done? Did they take all of our money, put it in suitcases, and flee to some sunny climate?
They did not. What they did was to miscalculate risk. They were making loans and they had no idea whether the loans could be paid back or not. Naturally, that practice eventually led to an economic crisis.
Guess who else was miscalculating risk?
Every middle-class investor who was investing according to the Passive Investing concept.
Taylor Larimore is the co-author of the book “The Bogleheads Guide to Investing.” He recently announced that, if stock prices drop again, he is going to sell all his stocks. There is no one who believes that it is a good idea to sell all of one’s stocks after a huge price crash. Where did Taylor, the author of a book on Passive Investing, go wrong?
He miscalculated risk. Just like the bankers did.
Why? Because he is using the same general methods of estimating risk as they are. The bankers are using more complex formulas. But they are also using a variant of the Efficient Market Theory, another “theory” rooted in the Economic Man or Rational Man economic model. They are also assuming that all investing decisions are 100 percent rational. That’s why their models all went kerplooey in the real world.
The reality is that investing is not a 100 percent rational endeavor. Stocks are often wildly mispriced. That’s why we all need to know to lower our stock allocations when prices get to truly insane levels.
At the top of the bubble, stocks were priced at three times fair value. The most likely long-term return on a purchase of an index fund was a negative number. Why is it that 90 percent of the “experts” were advising us to go with high stock allocations when stocks were priced to provide a long-term negative return?
It’s because most of the “experts” believe in Passive Investing. Passive Investing argues for ignoring price, for not changing your stock allocation when prices go to insanely dangerous levels.
The bankers miscalculated risk because the loans they were approving were backed by assets that did not possess the value they were being said to possess. Cotton-candy profits from the huge bull were used to purchase houses, and those purchases caused a bubble in housing as well.
It is our policy of playing “Let’s Pretend” games with our retirement money that caused the problems we are struggling with today. Had we known the true value of our stock portfolios and our houses all along, none of this would have happened. Why did we not know?
Because it embarrasses advocates of Passive Investing for people to report the realities. Because the fact that stocks had come to be priced at three times fair value shows how crazy it is to follow a policy of not changing your stock allocation in response to big price swings.
Buffett is right about the models used by the bankers. He is also right about the models used by middle-class investors accepting guidance on stock investing from the Passive Investing advocates.
Failed retirements are a serious matter. We need to begin taking in serious ways about the flaws in the Passive Investing model and what we need to do to get about the business of building a more realistic model to replace it.
Rob
“Taylor Larimore… recently announced that, if stock prices drop again, he is going to sell all his stocks.”
You, Robert M. Bennett, are a liar.
“Failed retirements are a serious matter. ”
Indeed! Thank God your parents passed away in a most timely manner so as to bail your unsustainable financial situation out, eh, Rob?
Rob’s stated plan, less inheritance, fully analyzed:
http://www.retireearlyhomepage.com/rob_failure.html
Anyone who interacts with Rob for long will eventually find themselves on the abusive/goon side of the population.
It is a small percentage of the population of Passive Investing advocates that engages in abusive tactics in a direct way.
But it is a large percentage of the population of Passive Investing advocates that tolerates the use of abusive tactics in “defense” of this model for understanding how stock investing works.
If I were seeing a poster who was advocating Rational Investing engage in these sorts of tactics, I would be ashamed and would disassociate myself from that person and from those tactics in every way available to me.
I have seen big names on the Passive Investing side sit on their hands and do nothing in response to the use of these sorts of tactics. These names include: (1) John Bogle; (2) William Bernstein; (3) Scott Burns; (4) Larry Swedroe; (5) Jonathan Clements; (6) the owners of Morningstar.com (as represented by their employees charged with enforcing their discussion-board posting rules); (7) the owners of Motley Fool (same); (8) Bill Schultheis (in this thread); and (9) J.D. Roth (in this thread).
One of the points made by Buffett is that “science advances one funeral at a time.” In other words, people who make big claims very, very, very, very much do not like admitting they were wrong to make those claims.
I think that we are seeing the dominant investing model of today fall to the ground in ruins in real time. I don’t say that just because I think that the case made by the Rational Investing advocates is strong. I also say it because the Passive Investing advocates do not appear to be confident enough in their ability to make a case on the merits to speak up against the use of the tactics we see evidenced in this thread.
There are lots of good and smart people who believe in Passive Investing. I think that they are going to need to think hard about how best to proceed to bring on the transition to a new model unless they can come up with something better than what we are seeing on this thread. it is my strong sense that this sort of thing is not going to continue to be able to fly much longer.
This sort of thing actually makes Passive look worse than it really is. Holy moly!
Rob
You, Robert M. Bennett, are a liar.
Here is a link to the thread at which Taylor announced that he would be moving to a “Plan B” in the event that stock prices fell again:
http://www.bogleheads.org/forum/viewtopic.php?t=30085&postdays=0&postorder=asc&start=0&sid=f7f9f1cb752ac939b162d65656e59e03
Juicy Excerpt (a comment by Daryll40) “Are you REALLY thinking about not staying the course? We had this discussion back in the fall and you were adamant that thru thick and thin that you would rebalance etc etc. Now it sounds like you are not only thinking about NOT rebalancing, but actually selling the “risky” (your word) equities that you have left. Is index investing a game where once you lose “X” (half?), you cash in what’s left and go home? ”
Passive Indexing usually becomes that. Because Passive Indexors miscalculate risk. Just like the bankers who follow the crazy models based on the same core theories as the ones in which Passive Investing is rooted do.
To invest effectively for the long term, you need to consider the risks you are taking on when investing in stocks. The risk level changes with changes in valuation levels. There is no way to invest effectively without taking the effect of valuations into consideration when setting your stock allocation. It’s a logical impossibility.
Rob
“I have seen big names on the Passive Investing side sit on their hands and do nothing in response to the use of these sorts of tactics. These names include:
J.D. Roth (in this thread).”
You are right, Rob. He hasn’t banned you.
Yet.
@Rob, I think Buffett was talking more about technical analysis [and momentum investing] when he made those comments not about passive buy and hold investing. That would be consistent with his many statements on the subject.
@Lindsay, actually my risk tolerance [at least the way mathematicians understand risk] is extremely high as I have 3 stocks in my stock portfolio, 80% of which is in one, Berkshire. But I understand risk a little differently than just variance and actually, like Buffett, see variance as a friendly factor that allows me to take advantage of the emotional nature of the market.
Now here is the rub, if you aren’t going to become an active investor and your aren’t willing to spend the time to learn how to invest in individual stocks and you are not emotionally prepared to see 50% of the value of your portfolio go bye-bye, and since there are many products that will give you a return similar to what you will get investing in index funds without the crazy ups and downs, then why invest in index funds? I believe if the truth was told about passive investing in mutual funds and it wasn’t encouraged or demanded by 401Ks, folks would be much better off in retirement. The truth is no one can look at the actual results of this investment strategy [as opposed to the theory of what may happen] and honestly come to the conclusion that it works. That is where I come from. Personally, I made a choice to follow a winning strategy [even if it turns out to not be a winning strategy for me in the future] instead of following what I know to be a losing strategy!
[i]You are right, Rob. He hasn’t banned you. Yet.[/i]
I take it back!
You’re doing a fine job, J.D.! Keep up the good work!
I’m obviously joking around.
What I truly believe is that J.D. is doing a kinda/sorta okay job, but that he could do a lot better.
J.D. said above that he is “not taking sides.” I think he should take sides. If he is willing to take sides on the substantive questions, that would help us all as I am sure that he has solid insights to offer re all this. On the process side, we really need him to take sides. He’s the only one with access to the buttons that need to be pushed to make the ugly stuff go away.
Not banning the ugly stuff while also not banning the criticisms of the Passive model is obviously a step better than banning the criticisms of the Passive model while not banning the ugly stuff. But I see big problems with that approach. It essentially gives the Goon posters a veto power over our discussions because most Normals will not participate in the sort of environment that is created when the Goons learn that no limits will be placed on their behavior. I am in favor of taking steps to reassure the Normals while not doing anything to discourage constructive input coming from either side of the table (it is obviously possible for the case for Passive to be made in a civil and reasoned way and the case will be made in that way once access to the low road is shut down).
I’d like to see more. But I am not going to say that I am not a little bit pleased to see even what we are seeing. Even what we are seeing is progress from a lot of what we saw in pre-crash days.
I’m always going to want things to move faster because I know about all the wonderful stuff that awaits us on the other side of the mountain. But I don’t want to come off as ungrateful for positive steps that really have been taken and that really do help us in a small way get to that place where deep in our hearts we all very much want to go.
Love! Courage! Onward!
Rob
I think Buffett was talking more about technical analysis [and momentum investing] when he made those comments not about passive buy and hold investing. That would be consistent with his many statements on the subject.
People should read the article and decide for themselves what he meant. I certainly do not share your take, Dave.
The fellow who wrote the article set the thing up by making reference to the Efficient Market Theory. That’s the theory cited all the time by Passive Investing advocates as support for their claim that “timing doesn’t work.” if there’s no efficient market, is there any reason to believe that investors cannot beat the market by adjusting their allocations in response to big price swings?
I recall reading the comments when I first saw the article (when it came out) and I recall there being several comments in which people heard Buffett to be criticizing buy-and-hold investing. So I am certainly not the only one interpreting his words that way.
And Buffett’s partner Charlie Munger has made comments in tune with the comments made in this article on earlier occasions. Munger has described Modern Portfolio Theory as “asinine.”
And Buffett himself has said on many occasions that investors should be greedy when others are fearful and fearful when others are greedy. How can that advice be squared with Passive Investing, which urges investors to be fearful when others are fearful and greedy when others are greedy (that is, to never question the market, to stick with the same stock allocation at all price levels).
Rob
“People should read the article and decide for themselves what he meant. I certainly do not share your take, Dave.”
I think it’s fair to say that Rob doesn’t share just about anyone’s take on just about any quote. I remember a few cases where he even argued the meaning of a quote with the person he actually quoted! Of course, if you’ve been following along, you’ve already seen Rob assign motivations to people he doesn’t know for actions that he mistakenly thinks they took. Thus, it’s pretty easy to see how Rob is happy to use anyone’s quote to mean whatever he wants it to mean. Rob has also been specifically asked by some of the people he quotes to stop using their quotes or at least to stop using them in a misleading way. Nonetheless, he continues right along.
“And Buffett himself has said on many occasions that investors should be greedy when others are fearful and fearful when others are greedy. How can that advice be squared with Passive Investing, which urges investors to be fearful when others are fearful and greedy when others are greedy (that is, to never question the market, to stick with the same stock allocation at all price levels).”
Nonsense once again. For starters Passive investing doesn’t urge that. Proper passive investors with an asset allocation are selling their recent winners and buying their recent losers – the same as what Buffet says. Buffett gives no specifics on the exact amounts to buy or sell so there is no contradiction even at a detailed level.
I think it’s fair to say that Rob doesn’t share just about anyone’s take on just about any quote.
There is a sense in which this is so and there is a sense in which it is not so.
This all started with the Old School retirement studies, so let’s look at what people say about those. Bill Bernstein said that anyone giving thought to using the Old School studies would be well-advised to “FuhGedDaBouDit!” Scott Burns says that there is research showing that at the top of the bubble the Old School numbers were off by two full percentage points. Larry Swedroe says that the Old School studies are a case of “Garbage-in, Garbage-Out” research. Bernstein and Burns and Swedroe are all well-respected figures among Passive Investing advocates.
So there’s a consensus among Passive Investing advocates that the Old School retirement studies are analytically invalid and need to be corrected, right?
Not so fast.
There is no such consensus. In fact, not even Bernstein, Burns and Swedroe have urged this!
So for seven years I have been pointing out that the Old School studies are analytically invalid and urging that they be corrected and the “leaders” at boards and blogs where large numbers of Passive Investing enthusiasts congregate have been demanding that I be banned from discussions so that I can not put forward statements urging that the Old School studies be corrected.
Do Bernstein and Burns and Swedroe agree with Rob Bennett? Or do Bernstein and Burns and Swedroe agree with the people urging that Rob Bennett be banned from the entire internet?
They agree with both! That’s the reality.
Bernstein and Burns and Swedroe acknowledge the facts. What they don’t acknowledge is the need for us to take some action in response to our knowledge of these facts. I urge the appropriate action that follows from learning that the Old School studies are analytically invalid. That’s what makes me “controversial.”
Rob Arnott says that we are in the early stages of a “revolution” in our understanding of what works in investing. That means that everything that we once thought we knew is about to be stood on its head. Many people see this revolution as a threat. They don’t want to say or do anything to advance it.
I welcome the revolution. I think it is going to lead to the golden age of middle-class investing.
So I acknowledge the implications of what people say as well as the actual words. Bogle is saying that Passive Investing is “nutty.” There is no other reasonable interpretation that can be put to his words. Those who are desperate to continue believing in Passive Investing can convince themselves that he did not say what he said. I cannot do anything about that. But I can report accurately what I heard him say (at least I can do this at places where reporting accurately what he said has not been prohibited). And so that’s what I do. I think it is a healthy thing for people to know what Buffett actually said and not what the Passives want to believe he said. I think that the best thing is for people to read the words for themselves and figure out what he said by themselves.
I believe that the Passives are suffering from cognitive dissonance. They are in pain. The changes in our understanding of how stock investing works that are coming are huge and it is hard for people who were once True Believers to take it all in. I certainly don’t mean to make any of these people feel bad. But I also certainly do not thing it is healthy for the rest of us to continue to pretend that we believe too that the emperor is wearing clothes.
I wish that Buffett would say the words “Passive Investing is nutty.” That would be better. That would make it harder for the Passives to continue in their illusions and help us al get to where we need to get sooner. I acknowledge that he didn’t do quite that. But I also say that any reasonable person reading his words is bound to acknowledge that he came awfully darn close.
There are more and more people saying things along the lines of what Buffett said every week. I make it a practice to check.
Rob
Proper passive investors with an asset allocation are selling their recent winners and buying their recent losers – the same as what Buffet says.
The historical data shows that the most likely 10-year annualized real return when the P/E10 level is 8 (at it was in 1982) is 14 percent. When the P/E10 level is 44 (as it was in 2000), the number is a negative 1 percent. Passives say that it is fine for investors to go with the same stock allocation at both price levels. What stock allocation is it that makes sense both when the most likely long-term return is 14 percent real and when the most likely long-term return is a negative 1 percent real?
Buffett says that we should be fearful when others are greedy and greedy when others are fearful. That does not mean going with a 60 percent stock allocation both when the likely return is 14 percent (which is what it is when others are fearful) and when the likely return is a negative 1 percent (which is what it is when others are greedy). Buffett is saying that most investors should be going with a stock allocation lower than 60 percent when the likely return is a negative number and higher than 60 percent when the likely return is 14 percent.
Everything else is word games.
Word games don’t do a good job of financing retirements.
Rob
Buffett gives no specifics on the exact amounts to buy or sell so there is no contradiction even at a detailed level.
This is a great point.
Buffett does say that the conventional investing wisdom (which is code language for “Passive Investing”) is “nutty.” And he often says that we should be greedy when others are fearful and fearful when others are greedy (that’s Valuation-Informed Indexing). But he does not offer specifics or details as to what sorts of allocations different sorts of investors should be going with at the different valuation levels.
Huh?
Why doesn’t he do that? That’s the information we need to hear to take practical steps to protect our retirement accounts.
He doesn’t do it because it is taboo. Scott Burns wasn’t kidding around when he told me that my policy of urging that the Old School retirement studies be corrected was “catastrophically unproductive.” Why, a person can get banned from discussion boards and blogs for saying a thing like that! It just isn’t done. It’s rude to let people know that their investing strategies do not work. It upsets them.
I get it that it upsets lots of people for me to discuss the realities.
I have taken note that it also upsets a lot of people for them to find out that they have lost much of their life savings in a huge stock crash.
We are all going to have to make a choice as to which way we prefer to be upset. I vote for talking about the realities, fixing the mistakes we made in earlier years, and then moving forward.
If Buffett were to give specific, practical advice, he would be spilling the beans. If he were to directly endorse Valuation-Informed Indexing, the game would be over for Passive Investing. It’s of course the same for Bernstein and Bogle and Swedroe and all the others.
I want the game to come to an end. I want us to more from the Passive Investing Era to the Rational Investing Era.
The most important question that every investor must consider is what his stock allocation is going to be. Intelligent discussion of that question has been taken off the table during the Passive Investing Era. The only intelligent thing to do is to change your allocation in response to big price swings. But acknowledging that reality means the end of the Passive Era. The stock allocation is the thing that the Passives are passive about.
We need to learn how to pronounce the three magic words “I” and “Was” and “Wrong.” And then we need to begin discussing all of the important investing questions that we were not permitted to discuss during the Passive Investing Era. We have a lot of wasted years to make up for.
The good news is that there’s some wonderful stuff on the other side of the black mountain. I’ve been living there for seven years now. It’s a far better place in every possible way. Things make sense on the other side of the black mountain.
Rob
Robert M. Bennett, self-proclaimed financial and career advisor of Purcellville, VA has been ringing this same old bell for over five years, and has been corrected numerous times, and then soundly rejected based on his lack of credibility every since he first started. Yet even top this very day, the truth apparently means nothing to him. He is a liar.
[some FIVE YEAR OLD posts will illustrate the point]
hocus
Posted: Thu Jul 15, 2004 5:27 am
Post subject: Re: Amount needed to retire
[quoted]Typically for a retirement of about 30 years and a stock/bond investment allocation in the 50/50 to 75/25 range, the historically justified SWR is on the order of 4%.[end quote]
SalaryGuru is referring here to the conventional approach to determining SWRs, the approach employed in the famous Trinity study and also in the study published at RetireEarlyHomePage.com. This methodology makes no adjustment for changes in valuation levels and thus reports the same SWR for all possible retirement start years.
This methodology has been discredited in recent years. William Bernstein says in his book “The Four Pillars of Investing” that changes in valuation affect long-term returns as a matter of “mathematical certainty” and that the conventional SWR methodology generates results that are “highly misleading” at times of high valuation. He calculated the SWR for a high-percentage stock portfolio at the top of the bubble at 2 percent.
intercst
Site Admin
Posted: Thu Jul 15, 2004 9:32 am
Post subject: Re: Amount needed to retire
I think it’s safe to say that hocus has been thoroughly discredited for frequently misquoting Bernstein and other respected researchers on this board and others. Here’s a link to what Bernstein really says about safe retirement withdrawals.
http://www.efficientfrontier.com/ef/901/hell3.htm
intercst
[added 28 May 2009] The only place that Mr. Bernstein directly uses the phrase “Trinity” on his excellent site is as follows, which is clearly COMMENDING the work of the three professors, not indicting it. Hocus likes to make it look like people who point out Rob’s assorted lies are zealots for blindly using the oldest studies. That is simply not true. Bengen, Kitces and others have done a lot of excellent work since the initial work to investigate and hopefully extend the WELL-CRAFTED and ACCURATE initial work done in Trinity. People who ‘call’ Hocus on his lies are not defending anything other than accuracy in reportage; a thing Rob claims a professional capability in, but for which evidence shows, as in investing, he is sorely wanting. He calls such people “DCOMS”, or “Goons” or other invented and disparaging terms. I ask the reader to judge for themselves who is the real mad man.:
[William Bernstein]
The Retirement Calculator from Hell
Most of you have seen the nifty retirement software available from the likes of
Vanguard and T. Rowe Price which provides the mathematical muscle to help
you plan your retirement. Input your retirement age, expected lifespan, required
annual income, rate of inflation and investment return, and hey presto, you find
out that to avoid a golden years diet of Alpo you need the GDP of the average
Central American republic.
Problem is, it may quite possibly be worse than that. These calculators all make
the same erroneous assumption — that your expected rate of return is the same
each and every year. In other words, let’s assume that the real (inflation adjusted )
rate of return of the S&P 500 will be 7% in the future. You might conclude that
you can withdraw an inflation adjusted $70,000 of your $1,000,000 Vanguard
Index Trust 500 IRA each and every year indefinitely, and maintain yourself with
the same real income in the long run. And you’d be wrong.
It turns out that if you have rotten returns in the first decade you will run out of
money long before reversion to the mean saves your bacon in later years. To
illustrate this phenomenon I went back to good old Uncle Fred’s infamous coin
toss, with its return of either -10% or +30%. Let’s assume that these represent real
returns. If over 30 years you toss 15 heads and 15 tails you earn a compounded
rate of 8.17%. (If you don’t understand why you don’t earn the average return of
10% (the average of -10 and +30), then go back and read Chapter One of The
Intelligent Asset Allocator.) If you start with a $1,000,000 portfolio and roll
alternating heads and tails over the 30 year period, then you indeed can withdraw
$81,700 (8.17% of the initial amount) over the next 30 years before all the money
runs out. However, if you are unlucky enough to roll 15 straight tails before
rolling 15 straight heads, you can withdraw only $18,600 per year. Reverse the
process and roll the 15 heads followed by 15 tails, and you can withdraw
$248,600 per year.
This phenomenon was first brought to the attention of the investing public by
Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz from Trinity University.
They looked at the “success rate” of various withdrawal strategies over numerous
historical periods, and came to the conclusion that only a withdrawal rate of
4%-5% of the initial portfolio value (i.e., $40,000-$50,000 of a $1,000,000
portfolio) had a reasonable expectation of success. This article can be found in
the February 1998 AAII Journal. You can also obtain a lucid explanation of their
work as well as their “success tables” on Scott Burns’ excellent website.
http://www.efficientfrontier.com/ef/998.pdf
There are extensive Post Archives relating to these questions. Those who wish to check out the realities for themselves can easily do so.
I provide the only New School retirement calculator at my web site at the “Retirement Risk Evaluator” section. There are articles at that section providing in-depth discussion of the errors in the Old School studies (they failed to adjust the retirement numbers for the valuation level that applies on the day the retirement begins, the single most important factor affecting retirement safety) and that provides quotes both of numerous experts who have commented on these questions and of numerous community members at the Retire Early and Indexing discussion-board communities.
Another easy way to check out the realities for yourself would be to get ahold of William Bernstein’s book “The Four Pillars of Investing” and turn to Page 234. He discusses there why the safe withdrawal rate at the top of the bubble was 2 percent, not 4 percent (as was reported in the Old School studies). Millions of middle-class investors will likely be suffering busted retirements in days to come as a result of that error, which was publicly reported in May 2002 and has not been corrected in any of the Old School studies to this day.
I am going to continue to report the retirement numbers accurately. There is no one safe withdrawal rate. The historical data shows beyond any reasonable doubt that the safe withdrawal rate is a number that changes in response to changes in valuation levels.
That cannot be so under the Passive model. Yet the historical stock-return data shows that it is so. I put what common sense says must be so and what the historical data confirms in fact is so over what the Passive Investing model says must be so for those who believe dogmatically in Passive Investing.
It was my discovery of the analytical errors in the Old School retirement studies and the failure of the big-name experts to take steps to get the studies corrected that first got me questioning whether the Passive Investing model makes sense. I concluded after further investigations that it does not.
I obviously do not mean to cause anyone emotional pain by pointing out the flaws in the Passive model. My intent is to advance the “revolution” in our understanding of how stock investing works anticipated by Rob Arnott. I believe that we all will feel a lot better about all sorts of things once we all come to an acceptance that there are a lot of things that we once thought we knew about investing that in subsequent years have turned out not to be so.
Rob
You can also obtain a lucid explanation of their work as well as their “success tables” on Scott Burns’ excellent website.
Here is a link to an article by Scott Burns in which he acknowledges the importance of the work that we have been doing in the New School of SWR Analysis for over seven years now (I exchanged many e-mails with Scott for nearly a year before persuading him to write what he did in this column — he checked things out very carefully):
http://www.dallasnews.com/sharedcontent/dws/bus/scottburns/columns/2005/stories/060205dnbusburns.2d233d3c9.html
Juicy Excerpt: “A growing school of thought believes future withdrawal rates should be reduced to reflect expected lower future returns. This would knock another 1.5 to 2 percentage points off the safe withdrawal rate.”
Please note Scott’s explanation of why the New School findings have not been featured on the cover of Money magazine for the seven years since their discovery: “You don’t hear much about this because it is information most people don’t want to hear.” (those words were written before the huge stock crash)
I want people to hear this information. I want people to know how stock investing works in the real world. That’s the entire point of urging a shift from the Passive model to the Rational model.
The big change that will come with the move from Passive to Rational is that it will free the experts up to tell us what they know about the realities of stock investing. That’s a good thing! That’s what we should all want!
The pain that comes with saying the three magic words is a short-lived pain. The happiness that comes with learning how to invest effectively and how to be able to retire many years sooner is a long-lasting happiness. This why I say that things are better in every possible way on the other side of the black mountain.
Rob
“Buffett does say that the conventional investing wisdom (which is code language for “Passive Investing”) is “nutty.””
Rob,
This has already been shown to be a lie. See above. The other things you’ve said today are also generally false. Do you say these things just for the attention?
“There are extensive Post Archives relating to these questions. Those who wish to check out the realities for themselves can easily do so.”
Yes, having done so (since Rob has been talking about them for years) I can tell you that they don’t support Rob at all.
“Another easy way to check out the realities for yourself would be to get ahold of William Bernstein’s book “The Four Pillars of Investing” and turn to Page 234. He discusses there why the safe withdrawal rate at the top of the bubble was 2 percent, not 4 percent (as was reported in the Old School studies).”
Read the book yourself and you will see that it doesn’t actually say this. Oddly enough this book was recommended to hocus years ago in the hope that he would learn something about investing. Instead he searched it for a quote similar to Buffet’s “nutty”. Rob directly asked Bernstein about this on a forum that later banned Rob (hocus) and Bernstein made it clear that Rob has misinterpreted him. (To put it as nicely as possible.) Rob claimed that this was because Bernstein is afraid of the “goons”. According to Rob, most famous figures are either goons, goon sympathizers goon leaners, people with inner goons or people afraid of the goons.
“It was my discovery of the analytical errors in the Old School retirement studies”
Rob’s “discovery” was that the 30 year safe withdrawal rate was not safe for 31 or more years. Rob claimed that he knew this error before the 30 year safe rate was determined (never explains how but time travel is the obvious answer) and that he kept this secret for years because he was afraid of “the goons”. When he finally worked up the “courage” to say this, the response was a resounding: well duh! Of COURSE you need to withdraw less to make your savings last longer. Rob labeled this as the “Campaign of Terror” announced that he was right to be afraid of the “goons” and 7 years later nothing has changed.
I have many friends in all of the discussion-board and blog communities in which I have posted.
A busted retirement is a serious life setback.
I will continue to report accurately what the historical data says re safe withdrawal rates.
Rob
A person who isn’t trying to take Scott Burns out of context would note that Scott later said that Rob’s idea is on very shaky ground and that Rob is “catastrophically unproductive.”
Note that the “growing school” comment was made after Rob directed Scott to the forum that had been given to Rob here:
http://s162532268.onlinehome.us/Sewer/viewforum.php?f=1
Scott had apparently taken a quick look, seen a lot of posts, and was in a hurry to get a column out. As such he didn’t notice that most of the posts were from Rob/hocus and that hocus was the moderator and simply deleted what he didn’t like and used multiple names to support himself. Scott has since mentioned only the so-called “Old School” stuff.
Rob labeled Scott one of the founders of the new school – a label Scott later made it clear that he didn’t want. Scott is possibly the most famous fish that hocus ever hooked.
There’s lots of material about my extensive correspondence with Scott Burns at the archives of my blog. Here is a link to a blog entry that is a good place to get started figuring out the realities:
http://www.passionsaving.com/200711.html#e518
Here are the two paragraphs that lead off that blog entry:
“Scott justified his banning of discussions of the New School approach to safe withdrawal rate (SWR) analysis from his discussion board on grounds that “your approach to communications seems to provoke” the abusive tactics engaged in by Greaney defenders. He described the contributions of the Goons as “useless name calling.”
“The Dallas Morning News columnist said that he appreciated my “efforts to add another level to the safe withdrawal rate discussion.” But he added that: “You go about it in a manner that is catastrophically unproductive by adding missionary zeal that inflates your importance and demeans others. The whole idea that there is a new school of Safe Withdrawal Rates reeks of personal aggrandizement.’ ”
I agree with Scott that the contributions of the Goons contain a whole big bunch of “useless name calling.”
I agree with Scott that valuations affect long-term returns and that the Old School numbers at the top of the bubble were off by a full two percentage points.
I disagree with Scott that I engage in “personal aggrandizement” by reporting on the realities of retirement planning. There were hundreds of community members who helped us develop our findings. There have been thousands who have expressed a desire that honest posting be permitted. It would be an insult to all those people if I were to pretend that our findings are not of great significance.
I agree with Scott that my policy of reporting the safe withdrawal rate accurately sets off the Goons. I believe that the proper way to deal with that problem is to enforce the posting rules that apply at all of the boards and blogs at which I have posted. The Goons will try harder to honor the community norms if we insist of them that they try harder to honor the community norms.
I deny that I have any “missionary zeal” re the subject of safe withdrawal rates. The truth of the matter is that I have a limited interest in this particular topic. It’s a numbers-related topic and I hate numbers-related stuff. I do have a missionary zeal re helping people to achieve financial freedom early in life. I don’t apologize for it. Our discoveries of the analytical errors in the Old School studies and the reaction we have seen to those findings has led us to exciting discoveries about all sorts of investing questions. I think that work is of great importance; it is probably the most important contribution that I have yet been able to make. I certainly want to be able to share what we have learned with all middle-class investors interested in learning about what we have learned during the first seven years of our discussions. The only “missionary zeal” that I have witnesses re the SWR matter is on the part of those who are showing a missionary zeal in their effort to block discussion of the errors in the Old School studies.
I disagree with Scott that learning the realities of stock investing is a “catastrophically unproductive” task. I see it just the other way. I believe that avoiding knowledge of the realities is a catastrophically unproductive task. I like knowing the realities. The more I know, the more confidence I feel in the strategies I am following. The more confidence I feel, the better able I am to stick with those strategies for the long run. I believe that sticking with your strategies for the long run is the key to success in stock investing.
Scott has helped us out in a big way and I am grateful for that. I don’t say that he has gotten it all right. Not by a long shot. Scott is a flawed human like all the rest of us.
Rob
hocus is now quoting hocus. How compelling.
And misinterpreting Scott Burns again. Intentionally? My guess would be yes.
“I deny that I have any “missionary zeal” re the subject of safe withdrawal rates.”
Scroll up.
And this is just one of many blogs and many forums that hocus has done this on.
And don’t forget the FBI, the police, congress, the PR firm that refused to work for him etc…..
And this is just one of many blogs and many forums that hocus has done this on.
This is an accurate statement. I have been working this hard for seven years now.
And don’t forget the FBI, the police, congress…
There was a time when if someone described to me the behavior we have seen evidence itself on this thread I would not have believed him. Now that I have seen it with my own eyes for seven years running, I know better.
We need to get about the business of fixing the problem. Discussion boards and blogs are important communications mediums of the future. We need to all work together to do what we can to see that they realize their potential.
We have seen both the best of the new medium and the worst of the new medium during the first seven years of The Great Safe Withdrawal Rate Debate. I hope that we will be seeing more of the good stuff and less of the bad stuff in days to come. I believe that that will be the case.
Rob
“There was a time when if someone described to me the behavior we have seen evidence itself on this thread I would not have believed him. Now that I have seen it with my own eyes for seven years running, I know better.
We need to get about the business of fixing the problem.”
Rob,
The simple answer would be to control yourself.
If you find yourself incapable of doing that, then a psychiatrist or a support group can probably help you. Alternately, simply getting off the web and doing something in real life might be a good idea. If you look around, I’m sure you can find volunteer positions needed in your area.
To any actual readers who got this far:
Might I suggest that if you really care for a refreshing, open-minded discussion about whether Passive Investing is actually tenable, here is the home of the Bogleheads (link below), who by and large feel that it is. Interestingly, some of the best spice comes from those who feel it is NOT, and as you will see in this thread, dissent is generally taken with what I would characterize as bemused good humor, which can then either evolve into a serious discussion – which it often does; or occasionally into sputtering disagreement. But in either event, everyone is completely free to speak their mind, as long as they abide by the rules (which are not onerous, but are unique – i.e. the admins are knife-wielding vicious about immediately killing anything political. That’s just the decision of forum management, and a decision that definitely impacts the ‘flavor’ of the forum — to the delight of many, and consternation of a few.
This is not meant to be an “ad” for the forum, per se, but just a note that since Rob is one of the handful of banned posters there, that those *serious* about promoting ideas, and not their books, blogs, egos, and money-making aspirations, can find refuge there from ceaseless repetitive trolls.
http://www.bogleheads.org/forum/viewtopic.php?t=38153&mrr=1243542655
I second (with the reservations noted below) Caring Soul’s recommendation that people interested in these issues check out the forum at Bogleheads.org. I view it as the best place on the internet to learn about how stock investing works in the real world. The big plus is that when you listen in to the discussions you are not hearing descriptions of theory as dreamed up in a classroom. You are seeing how the theories are implemented by real live people in the real live world.
The people who comprise the Bogleheads community are generally very smart. And there is some dissent from the Passive Investing dogmas permitted. Not nearly enough, however. Every ban that I know of was imposed because the poster banned was an effective critic of Passive Investing. Posters are permitted to raise questions here and there so long as they make no effort to explore the implications of the failure of the Passive Investing model. It is the implications that we most need to hear explored today. And of course the “leaders” of the board compromised the board’s integrity in a serious way when they banned effective criticism of the Passive model.
It is important to understand that it is not at entirely clear that John Bogle (for whom the board is named) in dogmatic in his support for the Passive model. Bogle has spoken in support of Passive on many, many occasions. That much is certainly so. Bogle has also spoken many times in support of the key principles of the Rational model (the alternative to the Passive model). I got on the path that I am on today as a result of reading Bogle’s book. And Bogle endorsed the Bernstein book in which Bernstein reported that the Old School retirement studies got the numbers wrong by two full percentage points. So Bogle’s position is unclear (it is common for threads in which posters are trying to figure out what Bogle really believes about valuations to go on for hundreds of posts because Bogle has put forward so many statements on both sides of the question).
I offered at one time to speak at the annual meeting held by the group and to question Bogle on his views on the various aspects of the valuation question. Mel Lindauer, co-author of the book “The Bogleheads Gude to Investing,” responded by changing the rules for who may attend the meeting, saying that he believed that Bogle needed to be “protected” from my questioning. Several community members objected in strong terms.
Lindauer describes Bogle as his “mentor.” Bogle did not comment on Mel’s Campaign of Terror against the Vanguard Diehards community (the Bogleheads.org board was formed by the “leaders” after Morningstar refused their demands that honest posting on safe withdrawal rates be banned at Vanguard Diehards) except to say after the board had been all but burned to the ground: “Why can’t we all just get along?” There have been many efforts to revive the Vanguard Diehards board in recent months. Mel has stomped them all out, with several assists by Morningstar.
There is more openness to dissent re the Passive question at both the Vanguard Diehards board and at the Bogleheads board since the big price crash. That’s especially so at Diehards. That’s a very positive sign.
I encourage all investors interested in learning more about these questions both to go to the board to learn and to do what you can to get the “leaders” there to be more responsive to community requests that honest posting by all community members be permitted on all valuation-related topics. I believe that this board could be key to our efforts to bring about a transition from the Passive model to the Rational model. Bogle could have great influence. Many investors have great respect for him. I believe that a statement by Bogle acknowledging the flaws in the Passive model would be huge.
I sent Bogle an e-mail several years back letting him know about the Valuation-informed Indexing strategy and asking for his reaction to it. I did not receive a reply to the e-mail. I very much look forward to having an opportunity to discuss the question with him in some depth. I believe that that will happen after we open up the Bogleheads and Vanguard Diehards boards to honest posting by posters coming from all perspectives on these matters.
Bogleheads is a good but highly compromised board. Let’s take a sorta, kinda sad song and make it better!
Rob
Rob: “Every ban that I know of was imposed because the poster banned was an effective critic of Passive Investing”
That is a flat out and ridiculous lie.
Rob: “I offered at one time to speak at the annual meeting held by the group and to question Bogle on his views on the various aspects of the valuation question.”
Another lie. He did not ‘offer’, he insisted loudly and often that he was going to attend, and he made it plain that at an event intended to fete and celebrate an esteemed elder statesmen, Rob wanted to force some sort of demented ‘show down’ where Rob grabbed the dais, and questioned and lectured people who had a pleasant evening with like-minded contemporaries in mind. This was not designed as “Battle Bots”, but as a social and sociable evening, and Rob made it clear he fully intended to crash the party and ruin the celebration dinner. You bet Rob was told not to attend. He was considered by some (including myself) to be a serious threat. Vanguard Diehards forum still has the applicable threads, and I assure you, they are a painful read.
Rob: “Several community members objected in strong terms.”
Yes, they objected mostly not to your shunning, but to the sad but necessary new requirement THAT YOU FORCED, to change the entire former method of attendance from just showing up, to requiring pre-registration so that there was an actual list of attendees, so a watchful eye could be cast for potentially disruptive and noxious party crashers. Such as Robert Michael Bennett, of Purcellville Virginia.
That is a flat out and ridiculous lie.
Here is a link to an article in which a good number of community members express their enthusiasm for discussions of the flaws in the Old School retirement studies and the development of the New School methodology:
http://www.passionsaving.com/community-comments-on-the-great-safe-withdrawal-rate-debate.html
Juicy Excerpt: “I quickly realized that there was an on-going debate and some history between someone named intercst and someone named hocus. Both seemed to present thoughtful information, albeit from differing viewpoints (always good, IMNSHO). I then noticed that the tone of the discussion shifted to one which was quite combative, with perhaps an endgame intending to silence the less popular opinion. My fears were confirmed when Ms. Coy joined the board and was quickly attacked for expressing her ideas. While I see nothing wrong in taking sides in a debate, I find the goal of silencing dissenting voices appalling. Surely there is more than one way to FI and RE!”
That one dates back to the Summer of 2002.
Rob
Rob’s characterizations of Morningstar and other forums (their supposed ‘burning’ and near demise and supposed bans on Honest Posting) can easily be tested by just a quick visit to any of them.
Bogleheads.
Morningstar.
Motley Fool. etc.
Each and all of them alive, vibrant, healthy, and sassy. Just a tad bit brighter now that they are free of one specific but amazingly prolific troll.
Vanguard Diehards forum still has the applicable threads, and I assure you, they are a painful read.
Here’s a link to the thread in which these events took place:
http://socialize.morningstar.com/NewSocialize/forums/p/194979/194979.aspx#194979
Juicy Excerpt: “I realize it’s convenient to make a lot of stuff a “Rob” issue, but I think that’s a distraction from a more substantive issue that concerns me–at least.
“If you believe in transparency, take a look at the initial announcement of the Diehards gathering posted by Mel, in which he issues the welcoming statement regarding “seeing each of you again, and meeting some of you for the first time.”
“Then go look (without having Rob in mind, please) at Mel’s #65 that now specifies a variety of unstated criteria not revealed in the initial announcement. Perhaps you all (including the invited speakers) are comfortable with such a version of a “restricted covenant” (is there a consent form that needs to be signed?), but what it tells me is there is a blackball procedure which I find morally disquieting.
“The very idea that Jack Bogle’s “safety” (or anyone else’s) would be an issue puzzles me, and the notion that the invited speakers need to be “protected” from disagreement really is astonishing. I (mistakenly) thought we were all grown-ups who know the rules of civilized discourse.
“Please don’t level your attack at Rob, whom I do not know. This is me speaking and I feel downright ashamed of the language of Mel’s #65. Bob Uphaus”
This discussion took place in February of 2007.
Rob
so a watchful eye could be cast for potentially disruptive and noxious party crashers. Such as Robert Michael Bennett, of Purcellville Virginia.
Who just happens to be the founder of the New School of Safe Withdrawal Rate Analysis and the co-developer of the only analytically valid SWR calculator available on the internet today.
Rob
Each and all of them alive, vibrant, healthy, and sassy.
Each of these boards enjoys the contributions of hundreds of wonderful people.
At each of these boards, posts that point out the errors in the Old School retirement studies or argue effectively about the flaws we have discovered in the Passive Investing model will be met with the sort of ugliness we have seen appear before our eyes on this thread.
Both things are so.
Rob
“Rob, The simple answer would be to control yourself.”
Not that I actually expected him to, of course.
“Who just happens to be the founder of the New School of Safe Withdrawal Rate Analysis and the co-developer of the only analytically valid SWR calculator available on the internet today.”
Someday after Rob figures out what his investing system is, he might be able to figure out what “analytically valid” is. I don’t expect either to happen this year, of course. Meanwhile, he’ll have to just keep repeating the buzz words until he can get someone else to say them too.
he might be able to figure out what “analytically valid” is.
An analytically valid retirement study is one that takes into consideration the effect of the valuation level that applies on the day the retirement begins when calculating the safe withdrawal rate. That’s what the New School studies do that the Old School studies fail to do.
Rob
“or argue effectively”
To Rob, this means: keep typing until everyone else goes away. The crank howto guide here:
http://scienceblogs.com/denialism/2007/05/crank_howto.php
notes that this is part of the “exhaustion strategy”. I recommend visiting that link. Rob has engaged in every behavior noted in the guide.
“An analytically valid retirement study is one that takes into consideration the effect of the valuation level that applies on the day the retirement begins when calculating the safe withdrawal rate.”
That’s really all analytically valid means to you Rob??? Are you sure you don’t want to think about that just a little more?
Rob, in the rest of the world specific words means specific things.
Humpty Dumpty in Lewis Carroll’s, Through the looking glass: “When I use a word”, Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean–neither more nor less.”
“The question is”, said Alice, “whether you can make words mean so many different things.”
“The question is”, said Humpty Dumpty, “which is to be the master–that’s all.”
Rob Bennett says:
—28 May 2009 at 7:49 am
I have many friends in all of the discussion-board and blog communities in which I have posted.
A busted retirement is a serious life setback.
I will continue to report accurately what the historical data says re safe withdrawal rates.
Rob—
Why are all your friends not posting at your blog?
All was well on the M* attendance thread, until the shot across the bow by Hocus (Robert M. Bennett) thusly – things degenerate fro mthere:
Do You Refuse My Offer of a Handshake?
hocus 02-18-2007, 4:11 AM | Post #2343377
0
[quoted]Looking forward to meeting you in June.[end quoted]
I think it would be helpful if you put up a comment like that directed to me as you put one up for the others who have indicated that they will attend, Mel.
Rob
Originally posted in thread: 57463
Rob then challenges the organizers, and continues for page after page of passive-aggressive ego-centric trolling and butt-showing:
Who Decides?
hocus 02-18-2007, 1:54 PM | Post #2343667
0
[M.L.]Our group honors and respects Jack Bogle and his message, so folks who don’t meet that criteria will not be allowed to attend.[end]
Who decides what Jack Bogle’s message is, Mel? Do you decide that or does Jack Bogle decide that?
Rob
Originally posted in thread: 57463
Remember, Mel is the author and organizer setting this up, to celebrate an ailing and aging man, and to meet with kindred spirits to celebrate… and Rob has decided to call him out…
I won’t post any more from that thread, but it is a classic example of a troll trying to look wounded and helpless even as they try to wreck others and cause havoc and misery by pitting innocent people against each other, because they don’t understand that Rob’s intent is to make himself the center of attention, and have others fight his “wronging”.
It frankly, turns my stomach to re-read it.
IMHO, Rob is a very nasty bit of work, folks.
Rob eventually gets around to describing his intent and his fantasy:
“I can write up a background description of the issue and supply them the questions. Then I could do a brief presentation at the meeting, followed by responses from Bogle and Bernstein. Then there should be a time for questions or input from others.
The point is to inform them. Hearing in-depth responses from Bogle and Bernstein would be constructive. It would teach us new things. It would send the discussions off in new and better directions. It would be a win-win-win-win-win. I see no potential downside whatsoever.
I am confident that Bogle and Bernstein would love it. This is the sort of thing they live for.
Rob”
Originally posted in thread: 57463
Also, just before the posts where hocus demanded to attend and demanded a welcome from Mel, Mel had promised to try to make the forum smoother by simply ignoring hocus and hocus gave him one of his back-handed passive-aggressive “thank you”s along with an implication that Mel wouldn’t be able to hold out. So within a day or two hocus was repeatedly demanding that Mel welcome him – a fairly good trap by hocomania standards.
Mel eventually responded by pointing out the they wouldn’t allow anyone they felt might threaten the safety and comfort of John Bogle. Given hocus’ history of rants, death threats, conspiracy theories, etc., Mel’s response was both appropriate and a rather clever way of avoiding a direct response.
Around the same time that he was threatening to show up at the Diehards meeting, hocus was ending his blog entries with “Let’s Disrupt!” How subtle.
Thanks, Lindsay!
I fell for a typical Hocus trap — I read a single linear discourse (which was plenty damning enough!) as if it were the totality, but without considering either contemporaneous parallel threads where Hocus was also stoking up the tension, or other baiting vehicles like PM and his blog, etc. Rob usually fights on multiple fronts.
When they write the book on “Cranks, Trolls and other Internet Subspecies”, Rob will warrant an entire chapter. Which perversely will, of course, please him to no end since infamy and fame are interchangeable treasure, in his world.
“The question is”, said Alice, “whether you can make words mean so many different things.”
For the middle-class investor seeking the information needed to put together a successful retirement plan, the word “safe” means “safe.”
A plan that has only a one in three chance of surviving 30 years is not “safe” in the eyes of the middle-class investor seeking information on safe withdrawal rates.
Rob
Why are all your friends not posting at your blog?
People have a natural fear of internet predators, critter.
There will be no further problems of this nature once people in positions of responsibility take the actions that I first urged Motley Fool to take in June of 2002.
Rob
I think it would be helpful if you put up a comment like that directed to me as you put one up for the others who have indicated that they will attend, Mel.
Those words get right to the heart of things. If Mel Lindauer cannot be friends with a fellow community member who has reported accurately on what the historical data says re safe withdrawal rates, there is something seriously wrong with the investing model being followed by Mel Lindauer.
If those following the model possessed inner confidence in it, we would not see this sort of reaction to questioning of it.
Rob
Who decides what Jack Bogle’s message is, Mel? Do you decide that or does Jack Bogle decide that?
Again, this question gets to the heart of things.
The Vanguard Diehards board was popular largely because of its connection with John Bogle. The same is so of the Bogleheads,org board.
What does John Bogle think of all this? This is an important question for all middle-class investors. Every personal finance blogger should be exploring this question today.
I do not believe that Bogle possesses a clear understanding of all of the failings of the Passive Investing model. But I find it more than a little hard to believe that Bogle endorses the behavior we have seen from Mel Lindauer and from those who have posted in “defense” of him at those two boards. I do not believe that it can be said that Lindauer speaks for Bogle (although he often tried to foster the impression that he does).
I should not need to speculate. All personal finance bloggers should be speaking up on behalf of middle-class investors and asking that Bogle address himself to these questions in clear and understandable language. Does Bogle still possess confidence in the Passive model or does he not?
Rob
hocus was ending his blog entries with “Let’s Disrupt!”
The blog entry that ended with those words was the blog entry written to report on the ban on honest imposed ultimately imposed by Morningstar.
I have never at any board at which I have been banned had the site administrator put forward a reason for the ban or point to a single post in which I engaged in any sort of abusive posting whatsoever. The closest I have gotten is a suggestion that the abusive posting of the Goons had proven “disruptive” to the board community.
That’s so, is it not?
Has this very thread not been disrupted?
Why?
Why is it disruptive to report on the realities of safe withdrawal rates on the internet?
And is that sort of disruption a good thing or a bad thing?
I say that it is a good thing. The reason why it disrupts for us to report on the realities of stock investing is that so many hundreds of millions of dollars were directed to the promotion of this strategy that it became shocking to many people to hear effective criticism of it.
That’s unhealthy. That needs to change. It helps no one for the flaws in the Passive model to go unreported.
I say again — Let’s Disrupt!
Rob
I am confident that Bogle and Bernstein would love it. This is the sort of thing they live for.
I continue to believe this.
If you read the work of Bogle and Bernstein (and of many other Passive Investing advocates) carefully, you see that they often try to speak in code to their more sophisticated readers to let them know that Passive can never work in the real world. I believe that Bogle and Bernstein and lots of others would absolutely love to be able to report the realities freely and clearly and comprehensively.
The Stock-Selling Industry has painted itself into a corner with its extensive promotion of the Passive strategy. We now are in a situation where the promotion of Passive is hurting the industry. There are now many investors who are afraid to buy stocks because they don’t understand why they have lost so much of their retirement money. The key to getting out of this economic crisis is restoring investor confidence. But that means pointing out the flaws of the Passive model and that is “catastrophically unproductive” in an environment in which reporting accurately what the historical data says re safe withdrawal rates is viewed as “disruptive.”
Rob Arnott is right that we are in the early days of a “revolution”in our understanding of how stock investing works in the real world. Given that Passive is going down in any event, what possible purpose is served by stretching out the pain?
There is not one person on Planet Earth who is harmed by us opening up the internet to honest and informed posting on investing topics. It’s a win/win/win/win/win. The only hard part is helping those who have advocated Passive in the past to learn how to say the three magic words. But once that is done, it is all downhill sledding for every single person involved. I believe that moving forward will ultimately prove to be catastrophically productive!
Rob
Rob usually fights on multiple fronts.
Wanderer once said that I have an unfair advantage because I can type so fast.
It’s not so!
I’m a two-finger guy.
The thing that makes me fast is that I have spent so much time thinking through these questions that it quickly comes to me what needs to be said and how to say it.
Rob
parallel threads where Hocus was also stoking up the tension
Discussions of what the historical data says re safe withdrawal rates should not cause any tension.
We’ll know that we have done the right thing when this stuff becomes boring again.
Rob
Bennett:”…is that sort of disruption a good thing or a bad thing? I say that it is a good thing.”
“I continue to believe this.”
Rob illustrates again and again that in his world-vision, his dream, there is no outcome that ends the trolling, except the one that ends with Rob owning the microphone and banning all other voices. He has shown his stripes on this very thread, admitting he called out for the banning of others. Who? me? For what? Lindsay? For what? critter? For what?
Here, we see the vision of what a world with Rob at the helm looks like. A man could not live in such a world!
Rob playing the role of “Board General”:
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1192262209/8#8
(Snips from hocus posted: Sat Jul 26, 2003 9:21 am at SeWeR):
I have not seen one post yet thanking me for my contribuition[sic].
I have put a whole lot more work into this thing than JWR1945 has
where are the posts saying “thanks for hanging in there, man, you showed a real love for the community doing that.
I am owed these posts given what I have been put through.
It’s something that in ordinary circumstances you would expect to see
My post of May 13, 2002, was a big giving back.
My post succeeded at that beyond my wildest dreams.
There was none of this hesitancy in coming forward with a “thank you” to hocus in those days.
We are owed a “thank you”
I am owed such a thank you today.
Big time.
There is no insight in the history of this board as important as the one that I have put forward.
The community should say “thank you”
I am not requesting any big celebratory event. [SNORFLE!!!! Just a statue, maybe a national holiday…]
those who see the benefit they stand to gain from this tool should say “thank you for hanging in there all this time, man.”
It is standard procedure.
Saying “thank you” to someone does not mean that you think they are above you. It means you are grateful for something they did that helped you.
It’s not just that I am owed the “thank you” in a personal sense. That’s part of it. But it is the entire community that benefits if the thank yous are spoken.
That’s the procedure by which that sort of thing is done.
I have been vindicated ”
*****************************************************************
Mar 22, 2005
I don’t shoot people who make me happy.
hocus2004
Moderator
Joined: 10 Apr 2003
Posts: 563
PostPosted: Tue Mar 22, 2005 10:03 pm
Post subject: A Break In The Action
I will check the board next Monday. If there are some sensible people who have put forward some sensible words, I will work with them to try to steer this in a positive direction. If there is just more nonsense gibberish, we will continue to travel down the path where nonsense gibberish takes us.
Quote from hocus on 09/01/07 at 08:51:20:
Mucakneebaba.
Schra!
Schranana!
SCRRANANA POO!
Teeka Poo! Swoopa Poo!
Poonaisey!
This will be my final post to this thread, regardless of any posts that may or may not follow. The owrds that follow are not mine, but they speak more plainly to what I and others feel and have gone through with Mr. Bennett than any similar length post has done. I consider it the definitive refutation to Mr. Bennett. I suppose the only shorter one would be:
“SHOW ME THE MONEY”
but some might not understand the context.
Cheers, and best wishes to all who see this post, or have otherwise accidentally placed a poorly-aimed foot right into a steaming pile of Hocomania.
Rob — please stop
Traveler1 02-20-2007, 8:29 AM | Post #2344966
You need to understand that this is getting a little ridiculous and tiresome for those of us who haven’t put you on our ignore list yet.
We all understand that you believe you have the secret to long term wealth and long term market timing. Through your P/E 10 analysis, you will be able to correctly get in and out of the market over the long term. Fine, we get it. Please give it a rest – the rest of us tire of hearing it.
Yes, as you point out, the tone of your postings tend to be respectful, and they on the surface appear to be ‘seeking truth’ and ‘healthy debate’, but this has gone into a very non-healthy realm. Others here that are smarter than I am have been patient and tried to point out some obvious flaws in your plan. But, you just continue with your exhaustive rhetoric about regression analysis and being valuation informed in such a manner that implies everyone else is wrong (see the title of this thread) and you are right. That is ridiculous.
If you had a special strategy that has worked for you, then great, share it. But, unless your strategy flashed “sell” in late 1999 (rather than 1996) and “buy” in late 2002 (rather than not yet), then what makes it a great strategy? As someone has already pointed out, 10 years is too long for someone to be out of the market given an average accumulation period of around 30 years, regardless of the danger zone or a bear market being buried in that ten year period. Time is the young investor’s friend. During that period, you would have had continual gains from rebalancing. You would be continually taking those gains off the table when stocks actually did rise through 1999. Those gains that you took off the table and put into safer assets would have further soared as interest rates dropped in 2000 and following. TNGuy points this out rather well in post #22 which is just ignored. Rob Reed points this out in post #41.
So, if you step out of your regression data, it seems fairly clear (to most of us) that this is probably not an optimal strategy. If I adopted your plan and it kept me out of the market for 10 years, my results were substantially inferior to just picking an approprirate asset allocation and re-balancing each year. Yes, the market is a dangerous place; thats what AA is about; picking the right mix and the level of risk you are willing to accept. We all understand that. Its risky today, it was risky in 1996, it will continue to be risky.
I’m not trying to be critical. I’m just asking that you understand that most everyone here have heard your message and considered it. Then, they step back and say, “does this make sense?” Well, the method signaled to get out of the market in 1996 and I would have lost out on about 7 years (out of 10) of positive gains (because my signals weren’t right at the right time) as well as any rebalancing bonus along the way. As Tnguy points out in #22, you would have ended up with an extra $100k or so following a simple buy, hold, rebalance strategy. How can you espouse that your method is superior? How has it worked for you?
For those of us who’ve listened to your strategy, considered it, and we see these obvious errors in the path it told you to take, it flashes “red hot danger signals” on our common sense meter. You’ve told us what you believe and why you believe it. Now please stop. In my opinion, you are putting others at risk that might decide that your approach somehow is time-tested and peer-reviewed.
Regards,
Todd
Originally posted in thread: 57550
he called out for the banning of others. Who? me? For what? Lindsay? For what? critter? For what?
This blog was created to help people who want to learn about personal finance topics.
Those of us seeking to use the blog for that purpose have a right to be protected from those who want to block us from using it for that purpose.
It’s the same at all of the discussion boards at which the Goons have blocked the discussions. The published rules at those sites are there for a reason. The published rules should be enforced in a reasonable manner.
Rob
Saying “thank you” to someone does not mean that you think they are above you. It means you are grateful for something they did that helped you.It’s not just that I am owed the “thank you” in a personal sense. That’s part of it. But it is the entire community that benefits if the thank yous are spoken.
It would help if you would reflect on why it is that the idea of saying “thank you” to a fellow community member causes you so much pain, Caring Soul.
I have obtained benefits from interactions with thousands of my fellow community members. I believe that each and every one of them is entitled to my gratitude.
I have even learned from the Goons. I post regularly at the “Goon Central” board founded by Greaney. Only yesterday Drip Guy had a post where he compared the stock market to the market in which cars are sold. Thinking about that question led me to development of a podcast entitled “Why the Stock Market Does Not Set Prices Properly (Even Though Other Markets Do). Is Drip Guy not entitled to my thanks for having done that (regardless of the Smear Campaigns that he has been leading against me for many years now)?
The Goon idea seems to be that anyone who reports the safe withdrawal rate accurately is an enemy or that anyone who reports on the flaws in the Passive model is an enemy. No. That is defensiveness. In the extreme.
When I share with you what I have learned about investing, that’s a help to you. You can benefit from it. If you do not find value in the insights that I put forward, you of course always have the option of not making use of them. But even in those cases it benefits you for me to offer them because my insights attract new community members to the boards and to the blogs and those new members will over time offer insights too and sooner or later you will benefit from one of them.
There is a reason why it has been the cultural norm for a long, long time for people to say “thank you” when someone does something nice for them. You lose nothing when you say the words “thank you,” Caring Soul. You gain. Saying those words helps you as well as the person to whom they are directed and all of your fellow community members. Saying “thank you” is a win/win/win/win/win. There are no losers whatsoever.
If you continue to participate in our community discussions, there will be times when I will say “thank you” to you and there will be times when you will say “thank you” to me. That’s a 100 percent normal situation.
In no field other than stock investing would any of what I am saying here be viewed as even a tiny bit “controversial.” The hundreds of millions of dollars that were spent promoting the Passive Investing concept have messed some of us up big time.
Rob
There is no insight in the history of this board as important as the one that I have put forward.
Has there even been another post in the history of the internet that generated even a tiny fraction of the number of responses that we have seen put forward in response to my post of May 13, 2002, Caring Soul?
I didn’t ask to be the one to put forward The Post Heard ‘Round the World.
But I sure am not going to pretend that I ashamed of having seen that honor fall to me. I work this stuff hard. The entire idea is to come up with the ones that have staying power, the ones that changes people’s lives, the ones that change the history of personal finance. I certainly am not going to apologize for winning the MVP award after working for years just to make it to the major leagues. That’s a little dream that came true for me. If you stick around, you’ll have your turn.
It is my screen-name on that one. It might be yours on the next one.
If it is your name on the next one, I hope that I will have the grace to step forward and pronounce a big “Thank You, Man!” in your direction. Even if the post that you put forward and that causes such a commotion happens to be one showing that some investing idea that I once believed in turns out not to stand up to scrutiny.
It’s easy to respond in grace when the post that causes the commotion is in line with your own thinking. It’s harder when it is not. It is the right thing to do in both sets of circumstances.
And of course you knew that before I said it. And of course everyone else reading these words knew it before I said it.
So what is it precisely that is the source of all the “controversy”?
Rob
Mucakneebaba.
Schra!
Schranana!
SCRRANANA POO!
Teeka Poo! Swoopa Poo!
Poonaisey!
Do you care to argue otherwise given all that we have seen appear before our eyes during the first seven years of our discussions?
Rob
it flashes “red hot danger signals” on our common sense meter.
This part is perfectly reasonable. It is helpful to the entire community for skeptics to put forward such posts.
You’ve told us what you believe and why you believe it. Now please stop.
This part is entirely uncalled for. All community members have both a right and a responsibility to post their sincere views. All of us suffer when community members with one set of beliefs seek to silence community members with another set of beliefs.
In my opinion, you are putting others at risk that might decide that your approach somehow is time-tested and peer-reviewed.
You are permitted to have whatever opinion you please on this subject. You are not permitted under the community norms to employ abusive tactics to “protect” the “others” for whom you here express concern. The “others” are permitted to make their own decisions on these matters, after hearing both points of view expressed in civil and reasoned discussions.
Rob
unless your strategy flashed “sell” in late 1999 (rather than 1996) and “buy” in late 2002 (rather than not yet), then what makes it a great strategy?
What makes it a great strategy is that it beats the alternative in nine out of ten 30-year returns sequences, often by a very wide margin. I write for people interested in learning how to retire early. Valuation-Informed Indexing permits the middle-class investor following it to retire five years sooner than he could if he followed a Passive Indexing strategy.
As someone has already pointed out, 10 years is too long for someone to be out of the market given an average accumulation period of around 30 years, regardless of the danger zone or a bear market being buried in that ten year period
It’s for each investor to decide whether he is willing to go with a low stock allocation for up to 10 years in exchange for being able to retire five years sooner. Long-term strategies are not for everyone. But there have been hundreds of community members who have expressed great interest. There have been thousands who have expressed a desire that honest posting be permitted on all of the discussion boards and blogs at which these ideas have been discussed.
Rob
Please give it a rest – the rest of us tire of hearing it.
There are a small number of Passive Investing Dogmatists who grew “tired” of hearing about the flaws in the Passive Model about 30 seconds into the discussions.
The vast majority of community members is tired only of the ugly tactics that have been employed by a small group of Passive Investing Dogmatists to block the discussions. I’m very much with the majority re this one. I grew tired of the trash posting on the afternoon of May 13, 2002.
Rob
you would have ended up with an extra $100k or so following a simple buy, hold, rebalance strategy.
For a short time, yes. But then you would have fallen far, far behind in the huge stock crash that inevitably follows each trip we make to insanely dangerous stock prices. Every dollar you hold onto by following the Rational model is a dollar that you can invest in stocks when they are again selling at reasonable prices. The Valuation-Informed Indexer earns compounding returns on that differential for the remainder of his investing lifetime.
How can you espouse that your method is superior?
The most important thing is that Valuation-Informed Indexing satisfies the common-sense test. The idea that there is no need to adjust your stock allocation when prices go to insanely dangerous levels fails this test.
The other thing is that the historical data confirms what common sense tells us must be so.
How has it worked for you?
I am far ahead of where I would have been had I followed a Passive strategy. I will of course go even farther ahead over the coming decades as the compounding returns phenomenon has a chance to work its magic.
Rob
the tone of your postings tend to be respectful
I am grateful that the poster who first put forward those words was kind enough to acknowledge this and that you implicitly acknowledge it as well by endorsing the words of the original poster, Caring Soul.
Rob
Rob/hocus: “Has there even been another post in the history of the internet that generated even a tiny fraction of the number of responses that we have seen put forward in response to my post of May 13, 2002, Caring Soul?”
Any crank who persistently responds to posts with false statements can make a thread go on forever. This one is an example. Once the website eventually bans, Rob, he continues to make false statements by calling it a “ban on honest posting” instead of a ban on Rob/hocus’ deception.
Rob/hocus: “I have not seen one post yet thanking me for my contribuition[sic].”
That says it all.
The actual quote:
“Rob – please stop
Traveler1 02-20-2007, 8:29 AM | Post #2344966
You need to understand that this is getting a little ridiculous and tiresome for those of us who haven’t put you on our ignore list yet.
We all understand that you believe you have the secret to long term wealth and long term market timing. Through your P/E 10 analysis, you will be able to correctly get in and out of the market over the long term. Fine, we get it. Please give it a rest – the rest of us tire of hearing it.
Yes, as you point out, the tone of your postings tend to be respectful, and they on the surface appear to be ’seeking truth’ and ‘healthy debate’, but this has gone into a very non-healthy realm. Others here that are smarter than I am have been patient and tried to point out some obvious flaws in your plan. But, you just continue with your exhaustive rhetoric about regression analysis and being valuation informed in such a manner that implies everyone else is wrong (see the title of this thread) and you are right. That is ridiculous.”
(See response 200 for full quote.)
Now, the way Rob report the same quote in response 209:
“the tone of your postings tend to be respectful”.
As we have already seen above, you simply can’t trust any of Rob’s quotes. Most of Rob’s quotes are sliced down to fractions of sentences, sometimes single words, taken completely out of context and applied in whatever way it takes to make Rob look good or at least inoffensive. He is totally shameless.
He did that right in front of your eyes by misquoting something right on this page. Now imagine how much liberty he takes when he refers to a misquote from some nebulous space like “the post archives” or “the historical data” – two of his favorites.
Rob/hocus: “I have not seen one post yet thanking me for my contribuition[sic].” That says it all.
That comment was made about one particular thread that appeared at a board at which community members were aware that the Goons had threatened to kill the loved ones of any poster who dared to “cross” them by posting honestly on the SWR topic. There were hundreds of posters in that community who had thanked me for my contributions in the investing area at earlier times and who obviously would have been happy to do so again had the ban on honest posting there been lifted.
It is obviously absurd to look at the posts that appear at a board at which a ban on honest posting is in effect and to use what appears at that board as some sort of indication of the true beliefs of that posting community. One of the reasons why the standard practice is to permit honest posting is so that we can find out what members of a posting community truly believe about the various topics being discussed.
Rob
See response 200 for full quote.
I agree with this recommendation.
Rob
“That comment was made about one particular thread that appeared at a board at which community members were aware that the Goons had threatened to kill the loved ones of any poster who dared to “cross” them by posting honestly on the SWR topic.”
Rob, the only death threats that I or anyone else who follows hocomania have actually seen are the ones you made. It is totally shameless to suggest that they were made by someone else.
“There were hundreds of posters in that community who had thanked me for my contributions in the investing area at earlier times and who obviously would have been happy to do so again had the ban on honest posting there been lifted.”
Reality check: this forum was given to Rob/hocus when he was banned from the serious investment forums at the same site. hocus was the moderator there and he deleted any posts he didn’t like. Many of the “other” posters there later turned out to be names hocus admitted to using to support himself.
Nonetheless, even at this forum, hocus was frustrated that he couldn’t get real people (ie not his sock puppets) to thank him.
“It is obviously absurd to look at the posts that appear at a board at which a ban on honest posting is in effect and to use what appears at that board as some sort of indication of the true beliefs of that posting community. One of the reasons why the standard practice is to permit honest posting is so that we can find out what members of a posting community truly believe about the various topics being discussed.”
Once again: Rob was the moderator and the only death threats I have seen are the ones Rob made. If Rob can document other death threats – please do.
Please note: I don’t think that Rob would carry out his threats. I think he is only nasty on the internet and is likely very shy (and possibly paranoid) in real life. That is why I suggested that he get out and meet real people above.
If Rob can document other death threats – please do.
I’ve done this on scores of occasions. And of course anyone who wanted to check the record could check for himself or herself. The bottom line is that it makes no difference. If the sort of thing we see on this thread does not prompt people to take action, documented cases of death threats will not prompt people to take action.
When the Goons were attacking the Vanguard Diehards board, there was a long-time poster there who asked “Where have all these abusive posters come from?” I explained that John Greaney (the owner of the http://www.RetireEarlyHomePage.com site and the author of one of the Old School retirement studies) became upset at the reaction of the Retire Early board community at Motley Fool when I pointed out the errors in the Old School studies. There were too many good posters there for him to destroy the community through the stuff his Goons are using here, so he used death threats to drive all the good posters out of the community. Then he did the rest with the sort of thing we see here.
In response to that post, one of the Passive Investing dogmatists contacted Morningstar. Not to ask that something be done about the death threats and about the attacks on the Vanguard Diehards board. To object that the death threats were being reported! This individual believed that letting people know that death threats are being used to destroy a board community is a terrible, terrible thing, but that death threats themselves are a nothingburger. Morningstar contacted me and asked for links to the death threats. I provided them. So they took action to protect the board community there, right?
Not right. They said that the death threats took place at another board and it was not their problem. I said that I agree with that but that, given that they did not want to get involved in the business of another board community, they should ask Mel Lindauer to stop linking over to the Greaney board regularly and inviting the Goons to come over to the Vanguard Diehards board to do their dirty work there. I asked Morningstar if they would like me to let them know each time Mel did this so that they could take action. I received no response to that e-mail.
There has never been any problem documenting the Campaign of Terror against the Retire Early and Indexing communities or now against the entire personal finance blog community. The problem has always been getting people who believe in Passive Investing to take action against Goon posters who in at least a nominal sense are posting in defense of Passive Investing. What we need is for some Passive Investing advocates who are repulsed by these tactics to work up the will to want to disassociate the Passive Investing advocates from all this ugliness.
It naturally gets worse the longer it goes on. If Motley Fool had taken action in June 2002, when they were alerted to the problem, the problem would have been solved in June 2002. The same solution that was available to us then is available to us now — taking effective action against the Goon posters.
There is obviously nothing that can be done at this point to erase what has happened over the past seven years. I do not have a magic wand. I have offered on numerous occasions to do all that I can short of posting dishonestly on the retirement numbers to help out anyone who is in need of helping out. I am obviously not able to do the job without help. It is obvious that not one person (least of all the Goons) benefits from us permitting this to continue. And yet it does.
I do what I can. i urge constructive and positive steps. I can do no more and I can do no less.
As noted above, the stuff on the other side of the black mountain is good enough to make what we have had to struggle through for seven years now worth it 50 times over. We will get there. I hope soon. But I am confident that we will all get there one way or another sooner or later.
It shouldn’t be so hard. I think that much is more than fair to say.
Rob
I don’t think that Rob would carry out his threats.
I’ll carry out my “threat” to report the retirement numbers accurately, Lindsay. You can count on that much.
Rob
So we can take #215 as: “No”?
——————–
http://www.passionsaving.com/200702.html#e372
So we can take #215 as: “No”?
When Morningstar asked me to provide the links, I provided the links.
If J.D. asks me to provide the links, I will provide the links.
If some other person with the influence needed to bring the Campaign of Terror against our boards and our blogs to an end asks me to provide the links, I will provide the links.
I provided the police with the links when they asked. There’s a blog entry in which I set forth the text of one of my e-mails to the Purcellville police. That contains a link to one of the death threats:
http://arichlife.passionsaving.com/2009/01/22/my-e-mail-to-the-virginia-police-re-the-campaign-of-terror-against-our-board-communities/
That’s enough for any reasonable person.
Rob
“I’ve done this on scores of occasions. And of course anyone who wanted to check the record could check for himself or herself. The bottom line is that it makes no difference.”
“That’s enough for any reasonable person.”
Thank you for admitting that there were no actual death threats besides the ones you made, Rob. Given that months have gone by with no action from the Police, congress, the FBI and everyone else you claim to have pestered, it looks like everyone is in agreement on this.
Rob: “If you read the work of Bogle and Bernstein (and of many other Passive Investing advocates) carefully, you see that they often try to speak in code to their more sophisticated readers to let them know that Passive can never work in the real world.”
Remember when Helter Skelter was code that told Charles Manson what to do?
Given that months have gone by with no action from the Police, congress, the FBI and everyone else you claim to have pestered, it looks like everyone is in agreement on this.
Humans have made mistakes before and humans will make mistakes again, Lindsay.
If humans were perfect, there would have been no out-of-control bull market. If humans were perfect, there would have been no stock crash. If humans were perfect, we wouldn’t have directed hundreds of millions of dollars to the promotion of an investing strategy that will in all likelihood be causing millions of failed retirements in days to come.
The other side of the story is that humans have an optimistic, caring, generous, strong, intelligent side too. You may see us some wonderful things coming about as a result of this economic crisis before the last word is written on the last page. My bet is that you will see just that.
Don’t count us out just yet, my Goon friend.
Rob
Remember when Helter Skelter was code that told Charles Manson what to do?
Chapter Two of the book “The Four Pillars of Investing” is in my assessment the best chapter ever written in any investing book that I have read. I have re-read Chapter Two four times during the first seven years of our discussions and each time I have discovered new investing insights as a result. Chapter Two is essentially a primer on the principles of Rational Investing.
I have a funny hunch that it wasn’t Charles Manson who wrote Chapter Two.
And the White Album is my least favorite Beatles album in any event. The Beatles put out a good number of singles that contained a greater number of first-rate songs.
Rob
“I have a funny hunch that it wasn’t Charles Manson who wrote Chapter Two.”
No, it was Charles Manson who read it. Try to keep the analogy straight.
“There is obviously nothing that can be done at this point to erase what has happened over the past seven years. I do not have a magic wand. I have offered on numerous occasions to do all that I can short of posting dishonestly on the retirement numbers to help out anyone who is in need of helping out. I am obviously not able to do the job without help. It is obvious that not one person (least of all the Goons) benefits from us permitting this to continue. And yet it does.”
Rob, I suggested earlier a psychiatrist, a support group, or just getting out and meeting people in real life. I still think any of these would be a good first step in recovering. You must surely agree that whatever you’ve done so far hasn’t made anything better. You are just as angry now as you were a year ago and as you were five years ago. All that has changed is that you are banned from many more places.
You must surely agree that whatever you’ve done so far hasn’t made anything better.
I don’t agree at all, Lindsay.
We wouldn’t have The Stock-Return Predictor today if a good number of us had not continued on despite the ugly stuff brought to the table by the Goons. We wouldn’t have The Retirement Risk Evaluator today if a good number of us had not continued on despite the ugly stuff brought to the table by the Goons. We wouldn’t have The Investor’s Scenario Surfer today if a good number of us had not continued on despite the ugly stuff brought to the table by the Goons. We wouldn’t have The Investment Strategy Tester today if a good number of us had not continued on despite the ugly stuff brought to the table by the Goons. We wouldn’t have Valuation-Informed Indexing today if a good number of us had not continued on despite the ugly stuff brought to the table by the Goons. We wouldn’t have the Rational Investing Model for understanding how stock investing works today if a good number of us had not continued on despite the ugly stuff brought to the table by the Goons.
It is easier to tear down than it is to build up.
But the work product that comes from building up lasts a whole big bunch longer.
I am proud of the May 13, 2002, post. I am proud of all the wonderful stuff that has followed from the discussions started by it. And I am proud that I was the first community member to speak up in strong terms urging action to put an end to the Campaign of Terror against our discussion-board and blog communities.
I certainly wish that none of the ugly stuff had happened. But I wouldn’t give up the thousands of exciting investment insights that we have developed together for anything. That stuff is true gold. It is working together with my fellow community members to mine that gold that makes it all worthwhile.
You focus far too much on the negative, my Goon friend.
Rob
And we’ve only just begun!
Rob
“It is easier to tear down than it is to build up.”
Why not try the harder path instead, Rob? 7 years of tearing down web forums because they might have “goons” and tearing down experts because they might be “goon sympathizers” hasn’t gotten you anywhere.
“I am proud of the May 13, 2002, post. I am proud of all the wonderful stuff that has followed from the discussions started by it. And I am proud that I was the first community member to speak up in strong terms urging action to put an end to the Campaign of Terror against our discussion-board and blog communities.”
Rob, please discuss this with a psychiatrist or support group.
So hocus won’t supply evidence of death threats against him, won’t detail his personal finances using his system, and won’t even attempt to explain his system?
We can all go home now.
BTW: I urge all to go to the hocus website
http://arichlife.passionsaving.com/
and listen to some of his more than 100 hours of podcasts explaining his system.
listen to some of his more than 100 hours of podcasts explaining his system.
No suggestion could be more fair, critter. I thank you.
And you are right to believe that some will find no value there. Some will. But some will not.
And that’s as it should be.
Rob
Rob/hocus: “There were hundreds of posters in that community who had thanked me for my contributions”
Rob/hocus: “I have not seen one post yet thanking me for my contribuition[sic].”
Well, take your pick. If there were thankers, you’ll notice that they’re never around. In the Rob/hocus universe, this is due to a worldwide conspiracy to suppress Rob. Somehow all of the people allegedly yearning to thank Rob are afraid of what someone else will say on the Internet if they do so. Oddly enough, this is true even at Rob’s blog where posts that don’t praise him simply don’t get past the moderator (Rob). At various times, Rob has estimated the conspiracy to consist of well over one billion people. At other times, he has estimated the conspiracy to be as few as 3 people. Rob keeps changing the size of the conspiracy just like he changes the number of people who have thanked him. Rob seems to just insert whatever number makes today’s claim sound the way he wants it to sound.
“It is obviously absurd to look at the posts that appear at a board at which a ban on honest posting is in effect and to use what appears at that board as some sort of indication of the true beliefs of that posting community.”
Yes, the only true arbiter of the true beliefs of the community is Rob Bennett. Reading what the community actually writes cannot possibly compare to how Rob WANTS them to write. Never mind that the community has consistently either banned Rob or moved to a new “hocus-free” website after hocomania grips their site. Never mind that even though Rob has ceaselessly spammed his web site for years, the community members have somehow never found their way to his little slice of heaven. Never mind that Rob sends emails to site owners asking that people who disagree with him be removed. Never mind that Rob has asked the police, congress, the EFF, and the FBI to force website owners to comply with his demands. Never mind that Rob tried to hire a professional PR woman, but after she spent time reviewing his site, she wasn’t willing to be paid to promote it.* It is Rob who truly knows what they think.
*Footnote: Rob documents this experience as the time he learned that goons are not just an Internet phenomenon. They exist outside the internet too because he talked to her on the phone. By choosing not to work for Rob, she proved that she was yet another goon.
Somehow all of the people allegedly yearning to thank Rob are afraid of what someone else will say on the Internet if they do so.
There’s no question but that many people are concerned today about internet predators.
Here’s a link to a cover article in Forbes describing the problem and suggesting that legislation is going to be needed in this area:
http://members.forbes.com/forbes/2007/1015/074.html
All blog owners who invite community interaction should be helping solve this problem, in my view. Community interaction adds a lot to a site. Those who take the gift incur a responsibility to pay something back from time to time too.
I believe that we need legislation to deal with the ruthlessly abusive tactics that have been used against the Retire Early and Indexing discussion-board communities and a good number of blogs in the personal finance field. This stuff is NoWheresVille.
Rob
“I believe that we need legislation to deal with the ruthlessly abusive tactics that have been used against the Retire Early and Indexing discussion-board communities and a good number of blogs in the personal finance field. This stuff is NoWheresVille.”
How would illegalizing your tactics help us, Rob? No one takes you seriously anyway. Most of the major sites have already banned you anyway so it sounds moot. Right now those who find you amusing can tune in and the rest can tune out.
“There’s no question but that many people are concerned today about internet predators.”
Again, Rob, that excuse works only if people take you seriously. Instead the reaction to you seems to run from amusing crank to medium annoyance. While you did threaten the granddaughter of a moderator once, I don’t think anyone ever expected you to carry it out. For one thing, there’s the practical matter that you have admitted that you can’t afford an airline ticket.
This is a great article, it really touches on the deep need for quality financial education in our country. I think ignoring wall street, and educating oneself on what makes the market tic, how value is created in a free market economy, and what signs/indicators to look for to invest in a “winning” company is probably the best way to build wealth.
Hence, the primary thing is for citizens to become self reliant. This is the bottom line. Wealth comes to those who prepare for it and investigate on their own, the best ways to build wealth and keep it.
This is excellent advice. Could not have said it better myself. MM
This is all fairly straight forward advice at first glance – amazing though to think that the basics of saving and investing are missed by most.
I would spare a thought to the people of Greece though when offering advice about savings – the banks have their own idea about who your money ultimately belongs to. Far better to save in bonds than banks these days!