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

Oh no. Rob won’t post. Our entire economy will now collapse.

You are of course being sarcastic. But I do indeed feel the concern that you are expressing here. It’s not that Rob Bennett will not post at one site that will cause our economy to collapse. It’s that as a nation we have not figured out a way to correct the mistakes in our understanding of how stock investing work in the 36 years since those mistakes were revealed in peer-reviewed research published by a Nobel-prize-winning economist.

I believe that we will see a change following the next crash. I believe that our Buy-and-Hold friends and our Wall Street Con Men friends and even our Goon friends have a place in their hearts in which they feel a love for their country. I believe that it is going to make a difference when they can see with their own eyes the human misery that results when millions of middle-class people are denied access to honest and accurate reports re what the peer-reviewed research of the past 36 years teaches us about how stock investing works in the real world. There’s a saying that “all’s well that ends well.” I believe that the good news here is 50 times more good than the bad news here is bad. I think that we are all going to see some amazing stuff in the days ahead and it is my hope and expectation that a lot of people who today are viewed as being on “the other side” will be helping us all come to a better understanding of the realities as revealed by the last 36 years of peer-reviewed research.

Yes, I believe that we are going to see a deepening of the economic crisis, Anonymous. The wonderful thing is that this is the first of the four economic crises that we have suffered as a nation that has been 100 percent optional. We didn’t have 36 years of peer-reviewed research to help us recover from the three earlier economic crises brought on by the relentless promotion of the Buy-and-Hold “strategy.” We have that this time and I believe that it is going to make a big difference. We have been through other tough spots as a nation and we will make it through this one in the same way we made it through things like the Civil War and the 911 terrorist attacks and Watergate and the Great Depression — by pulling together and by reaching down deep for what is best in us and by sharing it with others in a spirit of love.

We’ll see, you know?

That’s my sincere take re these terribly important matters in any event. And I naturally wish you all the best that this life has to offer a person.

Hang in there, old friend.

Rob

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

“Math isn’t my thing, Anonymous. The math supports what I say 100 percent.”

Those 2 sentences are in conflict with each other. You admitted you lack credibility.

I don’t see any conflict. It’s true that math isn’t my thing. And it’s true that the math supports what I say 100 percent.

Your point seems to be that you cannot place confidence in what I say re the math because I am not personally good at math. But Shiller is good at math. And Wade Pfau is good at math. And Rob Arnott is good at math. And John Walter Russell is good at math. So the point remains.

My personal belief is that people should look at things other than the math. There are LOTS of things that support VII and math is just one of them. I am personally more impressed by some of the other stuff because math is just not my thing. But it gives me a good feeling to know that the math supports VII too. I’d much rather have the math on my side than not have the math on my side.

The puzzle is how there could be anyone who does not support VII given what the math says. That’s where cognitive dissonance enters the picture. And that’s where I get super interested. The cognitive dissonance thing is fascinating to me. What should investment advisors do when one strategy is far superior in terms of risk and return but the other strategy is better from a marketing perspective because it taps into the Get Rich Quick urge within us all while the other strategy is rooted in logic and math and other stuff that does not turn people on so much?

The story here is a story of marketing vs. research. It’s a story where the marketing edge held by one of the strategies is so strong that people cannot even appreciate what the research says. People are not persuaded by the research not because there is anything non-persuasive about the research but because people will not let the research findings into their minds because they find them too darn painful to accept.

That’s not math, that’s psychology. The psychology effect here cancels out the math effect, even among people who in other circumstances place great value on what the math says (Buy-and-Holders in ordinary circumstances LOVE math). So getting the math right is not enough. To offer helpful investing advice, you’ve got to get the psychology right. And that’s not something that most people in this field worry about too much. People think of investing as a math field, not as a psychology field.

One of the many far-reaching implications of Shiller’s “revolutionary” (his word) findings of 1981 is that the investing advice field is a field in which understanding psychology is more important than understanding math. So that’s the direction in which we need to move. In the future, we will never talk about the math without taking the effort to put it into a psychological context because there is a risk that people will not understand the math if we haven’t first put it in the proper psychological context.

Is Shiller a psychology guy or a math guy? I would say that he’s a psychology guy. His primary contribution is on the psychology side. But he likes to present himself as a math guy. He does that all the time. He uses the same sorts of tables as the Buy-and-Holders use. He likes to take surveys. That way he can talk about people’s beliefs and feelings and have numbers next to them in the places where he presents them. He uses charts and graphics, which are not that common in the psychology field, to make his points. He is almost always making a psychology-related point. But he makes an effort to make the point through the use of numbers rather than just narrative. Because that’s what people in this field do. It makes him fit in better for him to do that.

I don’t fault him for it. I think that it’s great that he does that. He takes psychological concepts that possess great power and importance and expresses them with numbers so that he is using the language that people in this field understand and appreciate and accept. So good for him.

There are limits with how far you can go with that, though. My contribution is often to take the psychological-concepts-presented-in-math-form that Shiller and others are putting forward and to translate them into the sort of narrative that you would expect to hear if they were being presented in a field other than the investing advice field.

The best example of this was when Bill Bernstein made the case that the Buy-and-Hold retirement studies get the numbers wildly wrong because they don’t include valuation adjustments. Those are my words, not his. What Bernstein did (in his book The Four Pillars of Investing) was to say that, to adjust for the valuation level that applied near the top of the bubble, you need to subtract two points from the withdrawal rate identified by the Buy-and-Holders as safe — 4 percent. Bernstein didn’t perform the math exercise. He didn’t say “subtract 2 point and you get a safe withdrawal rate of 2 instead of 4.” He just gave people the math-based information they needed to figure out the correct number for themselves. He understood that he would upset people if he said plainly that “the safe withdrawal rate is today 2” because that enters the psychology zone. Tell people that and you are going to cause them to experience intense anxiety.

I go the extra step. I say “the safe withdrawal rate is today 2 percent” That statement is the product of a math exercise but it has psychological import as well. That statement scares people who planned their retirements based on a belief that the safe withdrawal rate is 4. So it is not just math anymore when you say it that way. And I of course take it even a step further. I don’t just say “the safe withdrawal rate is today 2 percent.” I say “that means that we are likely going to see millions of failed retirements in days to come because we have been telling people for years now that the safe withdrawal rate is 4 percent and they believed us.” That’s an INTENSE psychology statement. That statement leaves the math behind and travels to places that Bill Bernstein does not dare go.

I am famous for making statements like that and then refusing to take them back or to shut up about them or whatever. I am a pain inflictor. Not because I don’t like my Buy-and-Hold friends. Because I think that what the math is telling us is important and has psychological implications that need to be explored.

I added the second part to this comment Thursday morning after re-reading what I had written Wednesday night. I read the initial response and I realized that I wanted to say a bit more about how I take math concepts advanced by people like Shiller and Bernstein and push them into the psychological realm.

The psychological realm is where I think the real action is. The math is important. I don’t at all mean to denigrate the good people who focus on the math. But I believe strongly that the psychological stuff is what drives the investor decision-making process in the investing realm and so we must be willing to explore psychological stuff in great depth to do truly effective work in this realm. So I make it a practice to push the math stuff to the next stage, to the psychological stage.

That’s why you Goons hate me. You don’t want to know what the math says. You want to live in a world of illusion. You tolerate the Bernsteins of the world and to a point even the Shillers of the world. They are willing to present their math-based stuff and then shut their mouths about the obvious psychological implications of what the math tells us. That’s bearable to you. You don’t like it. You would be happy if they would knock it off and be Bogle-pure. But you get it that sometimes a guy feels a need just to report the math accurately no matter what crazy thing it says. So you tolerate Bernstein (and Shiller, to a lesser extent).

But I cross the line. I say “so we need to correct those bogus retirement studies before they ruin more middle-class lives!” That’s a bannable offence. That is the sort of thing that simply must not be said. That comes pretty darn close to accusing the Buy-and-Holders of financial fraud. That sort of statement requires ACTION. You don’t want to act. You want to live in the comfortable, complacent world of 1980, in the days before Shiller did that darn math exercise that caused him to be awarded a Nobel prize in Economics. I blotted that happy world out with my math-translated-into-psychology statement. So I must be blotted out!

The reason why I did only saving work and never investing work in my early years is that I saw that investing was a numbers-oriented field. Numbers are not my thing, psychology is my thing. So I stuck to saving, where it is accepted that psychology (motivational stuff) plays a big role and left investing to the “experts.” Then Greaney’s Goon Squad launched their smear campaign against Wanderer, who was a guy who wrote effectively about saving from a emotion-based perspective. That’s when the numbers-based stuff at the old Retire Early board bled into the psychology-based stuff. Greaney violated the unspoken agreement where people from both sides stayed on their own turf and left people who wanted to play on the other side alone. He wasn’t going to permit the psychology-oriented side of the board community to continue to exist because something that Wanderer said about real estate threatened him too much.

I used the same psychology-oriented arguments that I had had such success with on the saving side in the discussions of investing that followed. But they didn’t bring about the same result! People are not used to hearing psychology arguments in investing discussions. Where are the numbers, man? Investing has long been a numbers-based discipline. People expect to see numbers, not narratives. And certainly not song lyrics!

Shiller is a transitional figure. He makes psychology-based points using numbers. He makes an effort to speak the language of the Buy-and-Holders. I make an effort too. But I am less willing to compromise my psychology-based points to make them palatable to people expecting to see investing-oriented points presented through the tools that are most commonly employed in a numbers-focused field.

I think we give up too much when we limit ourselves in that way. I think that there are many important things that Shiller either understands or is close to understanding about how stock investing works that he has never told us because he is held back by his fear of leaving the numbers behind at times and framing his psychology-based points in the way they would be framed in any field without such a long history of sticking to the numbers.

I started out that way. I started out being as fearful as Shiller is of crossing the line, probably more so. Before May 13, 2002, I didn’t speak up AT ALL. But over time, I learned that holding back just doesn’t work. If you are going to say that the Buy-and-Hold retirement studies are in error and need to be corrected (I needed to say this much because of the circumstances that applied in a board community in which John Greaney was present), then you were persona non grata no matter how soft you played it and you might as well just let it rip. I still make a big effort to be polite because I have a general belief that that’s the way to go. But I state my investing points more boldly than Shiller dares to present his or than anyone else in this field dares to present his.

Math is great. I APPROVE of math. But math can only take you so far. At some point you have to DO SOMETHING with the math. If the Buy-and-Hold retirement studies are in error, then you need to get off your bottom and produce ACCURATE retirement studies, retirement studies that include valuation adjustments because the aim is to get the numbers right. Those sorts of studies are going to upset Buy-and-Holders not matter how gentle you are in your presentation. Your words that “you guys got the numbers wrong!” are fighting words to the Buy-and-Holders no matter how nicey nice you are in the comments that surround those words.

So you might as well just let it rip. If the Buy-and-Holders are going to threaten to kill your wife and children in any event, you might as well just go ahead and tell the full story to the best of your ability for that 10 percent that is losing confidence in Buy-and-Hold and that is open to hearing about a new truly research-based strategy.

Whew!

You got me going a bit with that one, my long-time Buy-and-Hold friend. Now I am pumped for the new day!

Rob

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

“I’ve got the entire site, Anonymous.

I’ve got five calculators that exist nowhere else on Planet Internet. I’ve got over 200 articles. I’ve got over 200 one-hour-long podcasts. I’ve got thousands of blog entries. I’ve got close to 200 Guest Blog Entries. I’ve got 350 entries for one weekly column and over 100 entries for a second and over 100 entries for a third. I’ve got endorsements from thousands of my fellow community members and from a good number of the most respected names in the field. I’ve got my name on the most important piece of peer-reviewed research published in this field in over 30 years. And I’ve got a Nobel prize awarded to the fellow who showed that what I said in my famous post of the morning of May 13, 2002 — that valuations affect long-term returns — is so. And of course I’ve got laws stating that financial fraud is a felony in the United States, punishable by imprisonment.”

So how is this all worth anything? What I mean by that question is how do you monetize this? Are you going to put a pay wall in place and charge people to access the information? What is the plan to turn all of this into money?

I’m a journalist, Curious. My job is to get the story out.

The transition from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. My job is to tell two huge stories: (1) why this advance has been delayed for 36 years; and (2) how middle-class people should invest for their retirements given what the last 36 years of peer-reviewed research tells us about how stock investing works in the real world.

There are so many ways to monetize this once every discussion board and blog on the internet has been opened to honest posting on the peer-reviewed research that I wouldn’t be able to count them all. I can’t say that the question of how to monetize is one that I have worried about for more than 15 seconds over the past 15 years. There are so many exciting possibilities that it is silly.

My job is to get the word out re what the research says and to bring an end to the abusive stuff so that all the thousands of others who have doubts about Buy-and-Hold feel comfortable expressing those doubts openly and plainly; there’s huge leverage in that because thousands of other people are obviously going to be able to bring things to the table that I am not able to bring to it. This should be an easy thing to pull off; we have laws against financial fraud. But in this particular case it has obviously been a very, very difficult thing to pull off. But once that part of the job is done, there is just no limit to the good stuff (including financial rewards to the pioneers) that follows.

I could write books, I could record CD sets, I could put advertising on the site, I could give speeches, I could do consulting on an hourly basis and on and on and on. And of course lots of other people could too. I certainly don’t mean to suggest that it is only going to be me making millions. There are going to be thousands of us making millions.

This is a paradigm change. All of the textbooks are going to need to be rewritten. Do you really not see how much money there is to be made living through a time when all the textbooks on investing are being rewritten? The authors of textbooks get paid big money to offer their advice in their area of expertise. It is very hard to get to be an author of a textbook. But when a field is revolutionized, amazing opportunities spring up. The opportunities available here are equivalent to the opportunities that were available on the internet in the first six months of its existence. Have you ever heard of Amazon? Facebook? Google? That’s the kind of opportunity we are looking at here. There are going to be people who make the sort of dollars that were made by the people who founded Amazon and Facebook and Google.

That’s why the resistance is so strong. The people who are making money under the old paradigm do not want to give up their turf. The flaw in their reasoning is that, if the last 36 years of peer-reviewed research is legitimate research, our economic system will not be able to survive unless we open the internet up to honest posting. The pressure to give people access to the thousands of investing insights that we all should have been mining together over the past 36 years is going to be too strong for turf defenders to continue to hold things up. Once people in this field see a break in the wall, there is going to be a rush to be among the firsts to develop the new paradigm. A process that should have taken place gradually over several decades will take place in the space of a few months or perhaps a few years.

I don’t have any worries whatsoever about monetization. My biggest worry is that the next crash will bring on an economic crisis so severe that it wipes us all out. In which case all of my monetization dreams amount to nothing. My second big worry is that people will be so angry when they learn what has been done to them that we will see a political explosion.

I try to address the second one by explaining to people the pressure that those in this field are under to keep this under wraps and by showing them the opportunities for a better future that will be available to all of us if we keep our cool and declare “victory” when the floodgates open rather than getting caught up in recriminations that serve no positive purpose.

I try to address the first one by developing the Valuation-Informed Indexing concept to the fullest extent possible prior to the opening of the floodgates. We can keep the economic crisis from getting out of hand if we get the word out about what works because it is by dropping to P/E10 levels far below fair value that we really hurt ourselves economically and drops that low are every bit as irrational as the price jumps we saw in the late 1990s. My hope is that we will never go to a P/E10 of 8 again or that, if we do, we will only stay there for a short time.

Those are my thoughts, in any event. That was an interesting question, Curious.

Rob

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

“I didn’t cause any of this problem.”

Of course not. By any measure you have lots of problems. But you in no way caused any of them. Every word said, every action taken, every decision made, was exactly correct. And yet, nothing of substance to show for any of it. Just a big fat kersplat.

I’ve got the entire site, Anonymous.

I’ve got five calculators that exist nowhere else on Planet Internet. I’ve got over 200 articles. I’ve got over 200 one-hour-long podcasts. I’ve got thousands of blog entries. I’ve got close to 200 Guest Blog Entries. I’ve got 350 entries for one weekly column and over 100 entries for a second and over 100 entries for a third. I’ve got endorsements from thousands of my fellow community members and from a good number of the most respected names in the field. I’ve got my name on the most important piece of peer-reviewed research published in this field in over 30 years. And I’ve got a Nobel prize awarded to the fellow who showed that what I said in my famous post of the morning of May 13, 2002 — that valuations affect long-term returns — is so. And of course I’ve got laws stating that financial fraud is a felony in the United States, punishable by imprisonment.

I’ve got lots.

And I’ve got a funny feeling that the people of the United States will be putting all of the materials available at this site to good use in the days following the next price crash. I’ve even got a funny feeling that my good friend Jack Bogle will be helping us out re those efforts at that point in the proceedings. A fellow with some pull. You might have noticed.

We’ll see, you know?

No, I don’t think that I have contributed in any way, shape or form to the problem (with the small exception noted below). I started the chain of events rolling. It’s my name on the famous post from the morning of May 13, 2002, pointing out that the retirement study housed at John Greaney’s web site does not contain a valuations adjustment. But it is not the pointing out of that reality that is the problem. It is the COVER-UP of that reality that is the problem and that has been the problem going back to 21 years before I even came on the scene.

The problem is that Jack Bogle did not give an “I Was Wrong” speech or an “I’m Not Sure” speech within a few days of the publication of Shiller’s “revolutionary” (his word) research findings of 1981. I even bent over backwards re that one and advanced the thought that Bogle was suffering from cognitive dissonance at the time, the most charitable explanation of the events that have played out since that could possibly be ascribed to them.

I didn’t cause the problem. Robert Shiller didn’t cause the problem. Wade Pfau didn’t cause the problem. The thousands of community members who have expressed a desire that honest posting on the last 36 years of peer-reviewed research be permitted at every site on the internet didn’t cause the problem. The policymakers that made financial fraud a felony under the laws of the United States didn’t cause the problem.

The most direct cause of the problem was Jack Bogle. If he had given an “I Was Wrong” speech or an “I’m Not Sure” speech within a week of the day that Shiller published his “revolutionary” (Shiller’s word) research showing that valuations affect long-term returns, Greaney would have included a valuations adjustment in his study and neither you nor I would have ever experienced any problem, Anonymous.

But it is not fair to pin this on Bogle alone. Shiller could have written in his book that “my research obviously discredits the Buy-and-Hold strategy,” that would have solved the problem. If Motley Fool had said “our rules do not permit the behavior that we have seen from the Greaney Goons, we obviously are going to permit honest posting on retirement planning at this retirement planning site,” that would have solved the problem. Had Wade Pfau said “I am not going to be responsive to intimidation tactics, I am going to work with Rob to get our research featured on the front page of the New York Times,” that would have solved the problem. And on and on and on and on and on.

And, yes, if you want to be all-encompassing about it, I contributed in a small way to the problem from May 1999 through May 2002, the three years in which I knew about the error in Greaney’s retirement study and rationalized not speaking up about it because I feared what his Goon squad would do to me if I did dare to speak out. Pretty much all of us have contributed to the problem in some way, shape or form over the course of the past 36 years. We all contributed to the problem and we are all today paying a price for our cowardice.

What do you propose we do about it?

We could continue to live in fear. In that event, more and more and more people will suffer in more and more and more ways. That one doesn’t sound like such a hot idea to me.

Or we could all pull together to make life better in about 50 different ways for every human living on the planet today and have a lot of fun doing it. That one sounds better.

Except —

I don’t decide for anyone but me.

You are going to do what you decide to do, Anonymous. And Bogle is going to do what Bogle decides to do. And Wade Pfau is going to do what Wade Pfau decides to do. And Robert Shiller is going to do what Robert Shiller decides to do.

Rob Bennett votes for the choice that helps us all to live far richer (in every sense of the word) lives from this day forward. While acknowledging that he gets to decide for Rob Bennett only no matter how much he hopes that lots and lots of others make the same exciting and positive and constructive and life-affirming choice.

That’s it, man.

When things reach a point at which you want to begin living a better life, you will begin living a better life. When things reach a point at which all the others want to begin living better lives, they will all begin living better lives. The first step to making huge steps forward (Shiller was awarded a Nobel prize for his revolutionary research findings of 1981) is acknowledging that there was a time when you didn’t know it all, that there was some possibility of achieving an advance.

I am ready to move forward. When enough others are ready to join me, we will get about enjoying life on the other side of The Big Black Mountain. There will be no apologies from this boy for having suggested in earlier days that we make the journey together at the earliest point in time possible. I love my country. Achieving huge advances every now and again is what this country is all about. If we ever reach a point where we see in other fields of human endeavor the sort of resistance to new ideas that we have seen in the investing advice field over the past 15 years, we won’t be seeing those 6.5 percent average annual real returns in the stock market anymore; it is the productivity gains rooted in occasional huge advances that support the high average returns that in the past have permitted so many of us to retire at reasonable ages.

I naturally wish you the best of luck in all your future life endeavors, my long-time Buy-and-Hold friend.

Rob

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

Who else will you be writing to if there is a crash?

I’ll write to everybody.

I’ll write to those 30,000 academic researchers again. It took me months to get those e-mails out. I received 150 responses. That’s a response rate of 0.5 percent. Most of the responses were amazing stuff, including the ones that made the case for Buy-and-Hold. How much do you want to bet that the response rate at least doubles following another crash? It’s surely my belief that that is what we will see. A higher response rate will advance the ball, which is obviously what we need to do to get to the other side of The Big Black Mountain.

This is what I mean when I say that I love my country. We have always allowed progress in this country. We didn’t get that 6.5 percent annual real return on stocks by accident. We have that amazing return because we permit advances in every field of human endeavor. We should be permitting advances in the investing advice field, just as we do in all others. When we do, we will see this economic crisis come to an end. I believe that we will even see an easing of political tensions when people are living better and are seeing economic developments that given them more hope for a better future for everyone.

These are my sincere thoughts re these terribly important matters in any event.

Not a Financial Fraud Advocate

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

“Everything that you are describing is the sort of thing that you would expect to see when the P/E10 level is where it is today in the event that Shiller is right and stock investing really is a highly emotional endeavor.”

Everything I described shows that you made wrong decisions that resulted in failure. You continue to blame everything and everyone else for your problems. As the saying goes : ” When you find yourself in a hole, stop digging”.

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

So you perform your valuation on a consumable item (like a car or banana) that also has an endless supply, like you do on an asset generates a profit and has limited supply.

Markets set prices. That’s what they do.

They perform this magic through a process in which both sellers and buyers act in their own self-interests. Sellers focus on all the aspects of the question that suggest that prices should be higher, thereby pulling prices upward, while buyers focus on all aspects of the question that suggest that prices should be lower, thereby pulling prices downward. The price that applies is the price at which the demands of the buyer and the seller meet at a point along the continuum of all possible prices that is acceptable to both. Any market without price resistance becomes dysfunctional.

The reason why we have price crashes in the stock market is that the stock market becomes dysfunctional when Buy-and-Hold strategies become popular. Buyers need access to the information that in a healthy market they would use to act in their own self-interest. But the Wall Street Con Men and the members of their various Internet Goon Squads very, very much do not want the millions of people who buy stocks to finance their retirements to gain access to this information, which is contained in an exploration and understanding of the last 36 years of peer-reviewed research. After your prison sentence has been announced, this critically important information will be available at every web site on the internet. At that time, both parties to stock transactions will be able to act in their self interest and the market will become functional again and prices will return to fair level values again, hopefully on a permanent basis.

Markets work through the magic of information exchange. Your abusive and even criminal posting behavior has blocked access to the information that those of us who want to buy stocks to support our old-age retirements need to perform the job that we need to perform for the market to do its job of setting prices properly. The entire nation — both the millions of middle-class investors who need access to the information and the Goons who deny it to them — suffers as a result. No one benefits in the long run from the presence of a dysfunctional (improperly priced) market. You Goons only believe that you are reaping benefits because you refuse to perform the calculation (dividing your portfolio value by two at a time when prices are at two times fair value) that you need to perform to identify the true and lasting value of your stock portfolios.

Price matters in all markets. Prices are what makes markets work. It is the entire purpose of a functioning market to set prices properly. A market in which prices cannot be set properly (because the information needed is being blocked) becomes a dysfunctional market. Everyone suffers when a market becomes dysfunctional. A functioning market is one of those free lunches we sometimes hear about. Restoring a market to a functioning status is a win/win/win/win/win, with no possible downside. We all should be grateful that the last 36 years of peer-reviewed research supplies us for the first time in history with the “revolutionary” (Shiller’s word) breakthrough in knowledge that we need to make the stock market a functioning market on a permanent basis.

Rob

 

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

Most people just go to the grocery and buy whatever is there. So it sounds like you fully support buy and hold.

I’ll make another point that relates to your “buy whatever is there” comment.

People are looking for something when they buy milk. Let’s say that they are looking for something to put on their cereal. When milk prices rise too high, they look for alternatives. Perhaps they buy that powdery stuff that you mix with water to get milk but that is not quite the same thing as milk sold in bottles and which thus might not be affected by the price increase for milk. Or perhaps they give up eating cereal for breakfast and switch to English muffins. Milk sales go down and English muffin sales go up until the price of milk returns to reasonable levels.

That’s how markets work. It is the demand for a good value proposition on the part of people buying a product offered for sale that creates the magic by which the market is able to set the price properly. This is how it works in every market that exists except the stock market. In the stock market, there is no price resistance. The newspapers report that the price of stocks has doubled over the past year and people throw parties to celebrate the good news. A market becomes dysfunctional when the people being hit with increased prices jump for joy about it. When the people buying the product refuse to do their job of looking for alternatives to a product that becomes overpriced, the only way that the market can get prices down is to crash them. And that hurts all of us in very big ways.

People buy milk to have something to put on their cereal. People buy stocks to create an income stream that will support them in their old age, when they can no longer work. When the price of milk rises so high that English muffins offer a better value proposition, people switch from milk and cereal to English muffins. When the price of stocks rises so high that alternative asset classes offer better income streams, people need to switch from stocks to those other asset classes. In January 2000, stocks were offering a likely 10-year real return of a negative 1 percent. IBonds were offering a certain return of 4 percent real. Yet people continued to shove money into stocks and ignored IBonds. What the h?

They did that because of social pressure. Every newspaper they picked up told them how there was some mystical, magical “research” that showed that stocks are worth buying at any price. It was an obvious lie but it was not a lie that many of the people who refer to themselves as “experts” in this field dared to give voice to. The other “experts” (in marketing!) were making millions pushing the smelly Buy-and-Hold garbage. If someone came forward and told the truth about what the peer-reviewed research shows, it would blow their deal. So, to keep our well-paid careers humming, most of us agree either to lie about this stuff or at the least to pull our punches and put forward lots of word-game statements about how “market timing doesn’t work” (without specifying whether we were talking about short-term market timing or long-term market timing).

I don’t play that game, Laugh. I tell it like it us, to the best of my ability. You hate me for it. So be it. I don’t hate you. I love you all the same and I believe that there will come a day when you will love me too. It will happen following the next price crash when you will no longer possess a motive to lie to yourself about the value of your stock portfolio. You won’t need to divide by two to know the accurate numbers in those days; the next price crash will perform that tricky mathematical step for you.

I buy stocks in the same way that I buy everything else I buy. I compare the value proposition being offered with the value proposition being offered by alternative purchases and I go with the best one. That’s what I advise all my friends to do. The Buy-and-Holders say that we should never, never, never do the comparison, that we must always just take it on faith that stocks are best regardless of the price at which they are being sold. This lie has done more harm to human beings than any other lie ever told in the history of personal finance. I want nothing to do with it. I have hopes of going down in history as the one person who did more than any other to EXPOSE this ugly Buy-and-Hold/Get Rich Quick lie.

We all will be free to discuss THOUSANDS of exciting investment-related topics once this Buy-and-Hold Lie has been fully exposed far and wide. I can’t wait, you know? I built the Retire Early board to facilitate discussion of just those sorts of issues and I know from the reaction to my May 13, 2002 post that a good percentage of that board community was as excited about that prospect as I was. It’s not a majority of investors that is interested today, not by a long shot. But it is perhaps 20 percent of the community of investors that has an interest in hearing these issues explored. 20 percent of the community of all investors is millions of people. That’s good enough for me. I am on the side of those millions. I will continue to speak up on behalf of those millions when their right to hear both sides of the story is attacked by the members of Jack Bogle’s various internet Goon squads.

We will see how it all plays out, my good friend.

Rob

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

“Nobody here has ever missed a meal”

That’s great, but frankly it’s not saying much. Even homeless people get regular meals. The real question is whether your family truly agrees with your course of action. I don’t recall you saying that they do, or that you ever even asked.

I’ve certainly asked. There have been lots of conversations about it. And I have written here about my wife’s feelings about the matter on more than one occasion.

My wife accepts that my work has great importance. She knows that I am honest. She knows about the things that John Walter Russell and Wade Pfau and Rob Arnott and hundreds of others have said about my work. And she knows what an internet Goon is. So she gets the basic picture and we are in agreement that far.

The fact that money has not been coming in for 15 years scares her. I think it would be fair to say that we do not see eye to eye re that one.

I see her reaction as being similar to the reactions of lots of others. Wade Pfau’s reaction is similar in many respects. He gets it that the Buy-and-Hold retirement studies are dangerous; they do not tell the people planning retirements what they need to know. Wade has said that on many occasions. He even wrote to the authors of the Trinity study asking that they correct their study. So Wade gets it.

But then again he doesn’t. Wade is no longer contacting the authors of Buy-and-Hold retirement studies seeking corrections. He is not even asking that the Bogleheads Forum be opened to honest posting. He is not seeking to get the research paper that he co-authored with me written up on the front page of the New York Times. So — Wade DOESN’T get it.

He gets it and he doesn’t get it. At the same time! The same person! That’s where we are today, Anonymous.

That’s my wife. She gets it and she doesn’t get it. At the same time. The same person. That’s where we are as a people.

I spoke with an acquaintance of mine about these general issues a week or two ago. He has every reason to take my side and he certainly did not want to endorse the behavior of you Goons. At one point, I mentioned something you Goons did and his face had a look of intense distaste. So he is not biased against me, he is if anything biased for me. But his conclusion was: “The stock market goes up and the stock market goes down — it always has!”

That’s what you might call a philosophical attitude. Does this fellow get it? Or does he not get it?

It is my view that he does NOT get it. It certainly is true that the market has always gone up and down. But what he is missing is that the downs cause us bigger problems today because millions of middle-class people need to finance their own retirements and the downs throw all their numbers wildly off when it is too late in their lives to make up for the losses. So the huge losses that have been typical in the market in the past are no longer acceptable.

Fortunately, Shiller’s research shows us how to avoid both the ups and the downs. But we cannot talk about Shiller’s research because the Buy-and-Holders didn’t know about it when they developed their strategy (he hadn’t published it yet!) and it makes them feel bad to acknowledge not always having known everything there is to know about the subject. So each day we drift closer to the edge of the waterfalls and all of us who see what is happening keep it to ourselves if we know what is good for us.

This guy thinks he gets it. And he is a smart fellow and a nice fellow and an unbiased fellow. Yet he does not get an important part of the story. He intellectually is capable of getting it. But emotionally he cannot accept what has happened. It is an incredible story. What I am saying is that most of the biggest-name experts in the field — good and smart people — are giving dangerous advice and aren’t even aware that they are doing it. This fellow tunes this out and just retreats to his philosophical stance — the market goes up and down, it always has and it always will.

That’s what I am up against. That’s a different version of my wife’s take. She knows me. So she knows that there is merit to much of what I am saying. But there are elements to this story that are hard to swallow. There’s a thing called “cognitive dissonance.” When a story is too hard for the humans to swallow, this cognitive dissonance thing kicks in.

I believe that the next price crash is going to bring the cognitive dissonance to an end. It is one thing to read peer-reviewed research showing that the continued promotion of Buy-and-Hold is going to put us in the Second Great Depression. It is something else to see with your own eyes the human misery that that entails. I believe that the next price crash will shock the cognitive dissonance away. I don’t have much choice. If I didn’t believe that, I couldn’t get out of bed in the morning.

Maybe I will be proven wrong. I am not God. I have gotten things wrong before. I cannot say with certainty that it is not in the process of happening again.

But what would you have me do? Every piece of evidence that we have seen for 15 years now has supported the peer-reviewed research of the last 36 years. Shiller says that investing is a highly emotional activity and the Buy-and-Holders have let their emotions run wild to the point of threatening to get academic researchers fired from their jobs if they continue to produce honest research. I have developed a funny feeling over the years that this Shiller fellow might be on to something. And you don’t need to have an I.Q. of 140 to see that, if this Shiller fellow is on to something, continued promotion of Buy-and-Hold is going to leave us all in a very, very, very scary place.

So I do what I have to do, Anonymous. You make it sound like a father’s ONLY responsibility is to bring in the bucks. That’s one important responsibility and I have honored it well for 25 years of marriage now. But that is not my only responsibility. If I wake up in the middle of the night and see that the house is on fire, I have a responsibility to bring my family members to safety. I cannot just lay in bed and tell myself “Hey! I bring in a steady paycheck! Let someone else handle the darn fire problem!”

Our economic system is on fire. Things have reached a point where the fire is beginning to spread to our political system. I have responsibilities in that regard too. So I am doing what I can. We have to find a means to work around you Goons and get honest and accurate reports of what the last 36 years of peer-reviewed research tells us about how stock investing works to the millions of middle-class investors who very much want it and need it. That’s my job. I have been elected to carry out the task. So I intend to carry it out to completion.

That’s the deal, Anonymous. I talk to my wife about it frequently. We are not in complete agreement. That makes it harder to do the job. But the job must be done successfully all the same. The survival of our economic and political systems is no small thing. SOMEONE sure has to do this job? Do you see anyone else stepping up to the plate? No, me neither. That’s why I am leading the charge.

I hope that works for you.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

Don’t run away Rob.

Think about it. For your story to tie together, the mass conspiracy against you would have had to have been in place before you stopped working. That is where your story falls apart.

There’s no mass conspiracy against me in particular, Sammy.

Until 1981, we humans did not have all the pieces in place to know how stock investing worked. In 1981, the last piece of the intellectual puzzle snapped into place. Now we had available to us everything we needed to for the first time in history offer effective investing advice, investing advice that would help us avoid bull markets and the bear markets that follow from them and the economic crises that follow from bear markets.

Had there been no model for understanding how stock investing works in place at that time, we all would have signed up as Valuation-Informed Indexers in 1981 and lived happily ever after. But there was a model already in place, one developed at a time when index funds were not available and when it was thus not possible to test whether long-term timing (price discipline) works and is required. So the old model got it all wrong. It was a numbers-based model and it did not include the numbers needed to reflect the effect of valuations, so it got every number wrong and therefore offered a bad take on every possible strategic question. It got asset allocation wrong. It got retirement planning wrong. It got risk management wrong. It got the cause of daily price changes wrong. it got the cause of economic crises wrong. And on and on.

There were many thousands of good and smart people who worked in the field and who had built careers promoting the now discredited model. They experienced cognitive dissonance when they learned about the last piece of the puzzle. They ignored this “revolutionary” (Shiller’s word) development. They rationalized their behavior. They told themselves that stock prices were so low (the P/E10 value was at 8 at the time) that it was not possible to imagine it ever again moving to greater than fair-value levels (15). So what possible harm could be done by pretending that valuations don’t matter, that Shiller’s research does not exist?

The idea that it is not necessary to exercise price discipline was heavily promoted. All humans possess a Get Rich Quick urge and so we all loved being told that we could vote ourselves raises just by pushing stock prices up to insanely dangerous levels. And we had experts telling us that it was okay to defy what our common sense told us must be so, that there was no penalty ever to be paid for pushing prices up so high, that there was no price level at which it was a bad idea to push stock prices even higher. We bought and bought and bought, we bought so much that we pushed prices up far beyond even the levels that caused the Great Depression. We were all very happy and very deep in cognitive dissonance.

Did any one us want to cause a Second Great Depression? Not one of us did. We started out in ignorance, as we do re every subject to which the humans ever address themselves. The difference in this case is that we couldn’t fix our mistake when it was discovered on that most fortunate day in 1981. We couldn’t fix it because it is so critically important to get things right in the stock investing field. If the mistake had been made in some other field, we would have followed the usual procedure, fixed the mistake and moved on. But this mistake was clearly going to destroy the lives of millions of good people. So we covered it up. We adopted a Social Stigma against talking about the implications of Shiller’s revolutionary findings. We awarded the man a Nobel prize because we knew he had earned one. But we never, ever told the millions of people who needed and wanted to know how stock investing works what now was common knowledge to those who follow the peer-reviewed research — the need to always, always, always practice price discipline when buying stocks.

And here we are. We all want the same thing. We all want to invest effectively. We all want to bring this economic crisis to an end. We all want to reduce the political frictions that have developed on both the left and the right as a result of the huge amount of human misery that has been suffered in the early years of the Buy-and-Hold Crisis. And we all act as if we are paralyzed, as if we cannot imagine doing the most natural thing in the world, helping to get the word out about the hundreds of amazing insights that have been developed over the past 36 years as the result of our good fortune to finally snap that last piece of the investing puzzle into place back in 1981.

Because we cannot bear at this stage of the game to acknowledge a mistake that we learned about 36 years ago and ignored, hoping that somehow, someway it would go way by itself and we would never have to face up to the consequences of our cover-up. Is that a conspiracy? If it is, it’s not a conspiracy against me in particular. It is a conspiracy against the entire human race. John Bogle started out wanting to help people with his investing work. He comes off as one of the great heroes of human history when we all come clean re this one. So this is a conspiracy against Jack Bogle as much as it is a conspiracy against Rob Bennett.

Jack Bogle is one of m favorite humans. So I don’t like the idea of participating in a conspiracy against the man. So I am not going to do it. I am going to try to help the man out by EXPOSING the conspiracy, to bringing it to a full and complete stop so that we can all start talking sense about this most important subject,

And you know what else? I am 100 percent confident that Jack will be working alongside me following the next price crash. Because Jack cares about the humans as much as I do and because he is going to want to do what he can to relieve the misery that will be obvious to all in the days following the next price crash.

This is a conspiracy of the humans against the humans. it is a conspiracy of ignorance. Overcoming ignorance is one of the true free lunches out there. There is no end to the good that can be done when ignorance re an important matter is overcome. Giving ourselves permission to speak sensibly about stock investing for the first time in history will be one of the greatest advances in human history that most of us have ever seen. It will be like the harnessing of electricity or finding of a cure for smallpox or the introduction of the Beatles on the Ed Sullivan show. None of us are ever going to forget the day when we pulled together to bring this conspiracy against ourselves to an end, when we elected to stop slamming our heads against walls and start developing the ideas that the peer-reviewed research in this field put before our collective eyes over three decades ago.

It is my job to bring this conspiracy to an end, Sammy. I am going to give it my best shot. I can do no more and I can do no less. I do it for me. I also do it for you. I also do it for Robert Shiller. I also do it for Jack Bogle. I also do it for all the people who lost their jobs in 2008 and who would like to become productive members of the human race again. I also do it for all the people who have become concerned about the level of vitriol that we have seen in political discussions held in our nation in recent years. And I do it for all the university professors who want to make their courses better. And I do it for all the academic researchers who want to do exciting research. And I do it for all the investing analysts who want to show their clients how to invest in stocks without taking on nearly the amount of risk that it was once thought stock investors need to take on. And I do it for all the people planning early retirements who want to get the numbers right.

Humans did not know all there is to know about stock investing in the days before I left my corporate employment. You are right re that one. But, if someone had come along before me and insisted on his or her right to post honestly re these matters at every discussion board and blog on the internet, I would have been spared your fifteen years of harassment. That would have been a good thing, no? I don’t want to see the next guy or gal exposed to 15 years of harassment and I don’t want to see the next Goon placed in circumstances in which he feels compelled to dish out 15 years of harassment. I want to bring the Conspiracy of Ignorance that has hurt us all so terribly for such a long time now to a full and complete stop by the close of business today.

It would do my heart good if you could wish me the best of luck with the project, my long-time good friend.

I wish you all the best that this life has to offer a person in any event.

Rob