"I'm no EMT fan. But which specific 1981 research are you referring to?"
Yale Professor Robert Shiller's research showing that valuations affect long-term returns.
If the market is automatically efficient, then investors are taking into consideration all relevant factors in setting the stock price. If all relevant factors are being taken into consideration, the value being assigned by the market is the PROPER value. There can be no overvaluation in an efficient market. But Shiller's research shows that overvaluation is a meaningful concept.
I have a page at my web site providing links to 20 studies showing that Buy-and-Hold is dead, Marius. Here is the URL:
http://www.passionsaving.com/buy-and-ho ... t-one.html
Even Buy-and-Holders acknowledge today that valuations affect long-term returns. Yet they don't include valuation adjustments in any of their studies. Huh? Why not? Why would you deliberately exclude a factor that you acknowledge makes a difference from a "study" of a question? I put the word "study" in quote-marks because it is not a study anymore when you exclude the most important factor bearing on the question being examined.
All studies that do not factor in valuations show that valuations have no effect. Of course they do! How could they possibly show anything else, given how they were set up?
The other side of the story is that every study that includes a valuation adjustment shows that valuations are the most important factor.
You can make a study say anything you want it to say just by leaving out the factors that cause it to say something other than what you want it to say. So the Buy-and-Holders make it a practice never to include a valuation adjustment. Does that really prove that valuations don't matter? It does not. All it proves is that Buy-and-Holders WANT TO BELIEVE that valuations don't matter.
All Buy-and-Hold studies are an exercise in rationalization. When you factor in valuations, you always get wildly different numbers. This is so for every question in investing analysis. Consider valuations and you get advice on asset allocation that is the opposite of what the Buy-and-Holders say. Consider valuations and you get advice on risk that is the opposite of what the Buy-and-Holders say. Consider valuations and you get advice on retirement planning that is the opposite of what the Buy-and-Holders say.
So do valuations affect long-term returns or do they not? That is the only question that is truly in controversy. If valuations matter, we should be counting the effect of valuations in every study. If valuations do not matter, we should be following Buy-and-Hold. But why is it that after decades of research no one has ever been able to produce a single study showing that valuations do not matter? What's up with that?
Rob
Is Buy-and-Hold Just a Marketing Pitch?
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RobBennett
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<i>I agree that buying may when valuations are low may offer better chances than buying when they're high. But doesn't what you write about selling also mean that you won't own much stocks during bull markets?</i>
It means that you will be going with a low stock allocation whenever the long-term value proposition of stocks is poor.
From 1982 through 1995, stocks were priced to provide good long-term returns. Both Buy-and-Holders and Valuation-Informed Indexers were going with high stock allocations during those years and it paid off for both. From 1996 through 2008, stocks were insanely overpriced and the chance that stocks purchased at those prices would provide a good long-term return were very small. Buy-and-Holders stuck with their high stock allocations. Valuation-Informed Indexers went to stock allocations of about 20 percent.
Stocks purchased in 1996 did well in 1997, 1998, and 1999. Short-term timing does not work (or, if it does, it takes a lot of work to pull it off). So there was no way to know whether stocks purchased in 1996 would do well in 1997, 1998, and 1999. However, long-term timing ALWAYS works. So the investor who cared to look at valuations knew in 1996 that stocks purchased at those prices might pay off for a short time but that in the long term he would be better off in far safer asset classes.
The key thing that people need to understand is why short-term timing never works and why long-term timing always works. It is because there are different factors affecting stock prices in the short term and in the long term. In the short term, prices are set by investor emotion. That's unpredictable. In the long term, prices are set by the economic realities. Those are highly predictable.
Stocks are like anything else that can be bought and sold. They offer an amazing value proposition at some prices, a solid value proposition at some prices, and a horrible value proposition at some prices. Those who do not take price into consideration when setting their allocations are investing blindly. They are failing even to look at the thing that matters most to long-term success.
Rob
It means that you will be going with a low stock allocation whenever the long-term value proposition of stocks is poor.
From 1982 through 1995, stocks were priced to provide good long-term returns. Both Buy-and-Holders and Valuation-Informed Indexers were going with high stock allocations during those years and it paid off for both. From 1996 through 2008, stocks were insanely overpriced and the chance that stocks purchased at those prices would provide a good long-term return were very small. Buy-and-Holders stuck with their high stock allocations. Valuation-Informed Indexers went to stock allocations of about 20 percent.
Stocks purchased in 1996 did well in 1997, 1998, and 1999. Short-term timing does not work (or, if it does, it takes a lot of work to pull it off). So there was no way to know whether stocks purchased in 1996 would do well in 1997, 1998, and 1999. However, long-term timing ALWAYS works. So the investor who cared to look at valuations knew in 1996 that stocks purchased at those prices might pay off for a short time but that in the long term he would be better off in far safer asset classes.
The key thing that people need to understand is why short-term timing never works and why long-term timing always works. It is because there are different factors affecting stock prices in the short term and in the long term. In the short term, prices are set by investor emotion. That's unpredictable. In the long term, prices are set by the economic realities. Those are highly predictable.
Stocks are like anything else that can be bought and sold. They offer an amazing value proposition at some prices, a solid value proposition at some prices, and a horrible value proposition at some prices. Those who do not take price into consideration when setting their allocations are investing blindly. They are failing even to look at the thing that matters most to long-term success.
Rob
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RobBennett
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"in the interest of full disclosure:"
The site you are pointing to is owned by a fellow named John Greaney. Marius. I think it would be fair to refer to John (who I consider an estranged friend -- we had lots of good times together in the Motley Fool days) as the most abusive poster in the history of the internet.
Here is the URL for a page at my web site at which I quote the comments of 101 of my fellow community members who have expressed a desire that honest posting on SWRs be permitted at all of our boards and blogs:
http://www.passionsaving.com/investing- ... oards.html
John got an important number wrong in a study that people use to plan their retirements. Thousands of my fellow community members are going to suffer one of the worst life setbacks imaginable as a result of his unwillingness to correct that error for eight years now since it was brought to his attention. If we had gotten publicity for the findings we made at the Motley Fool board, as I wanted to, those findings would have been written up in the New York Times and the Wall Street Journal and there would have been MILLIONS of middle-class investors who would have been spared failed retirements as a result.
There is no dispute today on the question of whether John got the numbers wrong or not. Numerous big-name experts have confirmed this. Bill Bernstein has said that anyone giving thought to using one of the Buy-and-Hold retirement studies to plan a retirement would be well-advised to "FuhGedDaBouDit!' Larry Swedroe has described the Old School SWR studies as "Garbage-In/Garbage-Out" research. Ed Easterling has said that many retirees will spend their last years working as greeters at Wal Mart because of our failure as a society to point out the errors in these studies to the people using them without knowing that they were found to be in error eight years ago.
I have argued for a long time at many places that no one is doing John a favor by encouraging him not to correct the study and to continue the smear campaigns and acts of defamation against those who post on these matters honestly. How many lawsuits do you think are going to be brought against him in days to come by people who suffer failed retirements because he was not willing to correct a number he got wildly wrong?
Anyone can make a mistake, Maurius. One of my biggest fears in writing about personal finance is that someday I might make a mistake that would cause someone to suffer a serious financial setback. Do you know how I deal with that concern? I acknowledge that I do not know it all. I invite people with different viewpoints to post at my site, to challenge my claims. I correct errors as soon as they are brought to my attention.
That's what John and all other Buy-and-Holders should be doing. When we as a society began making middle-class investors responsible for financing their own retirements, we took on an obligation to provide means for them to obtain accurate information on retirement and many other investment-related topics. As the result of Greaney's efforts and the efforts of his "supporters," honest posting on retirement planning has been banned at a number of big investment boards and blogs. This is a terrible, terrible mistake and it is going to take many years or possibly even decades for us to recover from the fallout.
I am proud to say that there is no one in the Retire Early or Indexing discussion-board communities who has done more than I have to bring attention to this matter and to bring all the ugliness to a full and complete stop. I have a long record on this one, and all of my posts are in Post Archives on the internet. I urged Greaney's removal from the Retire Early Community in a post that I put to the Motley Fool board on NOV.23, 2002. I have done my part and then a whole big bunch more, and then a whole big bunch more than that.
I can tell you that there were many community members who expressed a strong desire to learn about the realities of stock investing at every board and blog at which I have posted. Those people matter. Greaney should correct his study. So should all the others who have put forward retirement studies that get the numbers wildly wrong. That's when the real fireworks (the good kind) begin! There is not one person alive who benefits from not knowing how to invest effectively.
Rob
The site you are pointing to is owned by a fellow named John Greaney. Marius. I think it would be fair to refer to John (who I consider an estranged friend -- we had lots of good times together in the Motley Fool days) as the most abusive poster in the history of the internet.
Here is the URL for a page at my web site at which I quote the comments of 101 of my fellow community members who have expressed a desire that honest posting on SWRs be permitted at all of our boards and blogs:
http://www.passionsaving.com/investing- ... oards.html
John got an important number wrong in a study that people use to plan their retirements. Thousands of my fellow community members are going to suffer one of the worst life setbacks imaginable as a result of his unwillingness to correct that error for eight years now since it was brought to his attention. If we had gotten publicity for the findings we made at the Motley Fool board, as I wanted to, those findings would have been written up in the New York Times and the Wall Street Journal and there would have been MILLIONS of middle-class investors who would have been spared failed retirements as a result.
There is no dispute today on the question of whether John got the numbers wrong or not. Numerous big-name experts have confirmed this. Bill Bernstein has said that anyone giving thought to using one of the Buy-and-Hold retirement studies to plan a retirement would be well-advised to "FuhGedDaBouDit!' Larry Swedroe has described the Old School SWR studies as "Garbage-In/Garbage-Out" research. Ed Easterling has said that many retirees will spend their last years working as greeters at Wal Mart because of our failure as a society to point out the errors in these studies to the people using them without knowing that they were found to be in error eight years ago.
I have argued for a long time at many places that no one is doing John a favor by encouraging him not to correct the study and to continue the smear campaigns and acts of defamation against those who post on these matters honestly. How many lawsuits do you think are going to be brought against him in days to come by people who suffer failed retirements because he was not willing to correct a number he got wildly wrong?
Anyone can make a mistake, Maurius. One of my biggest fears in writing about personal finance is that someday I might make a mistake that would cause someone to suffer a serious financial setback. Do you know how I deal with that concern? I acknowledge that I do not know it all. I invite people with different viewpoints to post at my site, to challenge my claims. I correct errors as soon as they are brought to my attention.
That's what John and all other Buy-and-Holders should be doing. When we as a society began making middle-class investors responsible for financing their own retirements, we took on an obligation to provide means for them to obtain accurate information on retirement and many other investment-related topics. As the result of Greaney's efforts and the efforts of his "supporters," honest posting on retirement planning has been banned at a number of big investment boards and blogs. This is a terrible, terrible mistake and it is going to take many years or possibly even decades for us to recover from the fallout.
I am proud to say that there is no one in the Retire Early or Indexing discussion-board communities who has done more than I have to bring attention to this matter and to bring all the ugliness to a full and complete stop. I have a long record on this one, and all of my posts are in Post Archives on the internet. I urged Greaney's removal from the Retire Early Community in a post that I put to the Motley Fool board on NOV.23, 2002. I have done my part and then a whole big bunch more, and then a whole big bunch more than that.
I can tell you that there were many community members who expressed a strong desire to learn about the realities of stock investing at every board and blog at which I have posted. Those people matter. Greaney should correct his study. So should all the others who have put forward retirement studies that get the numbers wildly wrong. That's when the real fireworks (the good kind) begin! There is not one person alive who benefits from not knowing how to invest effectively.
Rob
The real reason many people (myself included) are buy and hold is that corporations pick the 401k options for the employees and the government offers tax incentive for employees to invest through the 401k. Who wants to give up the 25-27% first year gauranteed return (tax incentive), to go out and hand choose stocks that are undervalued? Not to mention growing tax free. The system is designed for buy and hold so the economy can appear more stable. The system goes bust if everyone jumps ship in bad times.
You are also assuming that the general public can make "rational" decisions. I do not think this will ever be true. People are like cattle when it comes to doing what is considered popular. I can tell someone they will save $XXX,000 by buying cheap used cars, but most will go out and lease a new BMW once they have extra cash.
You are also assuming that the general public can make "rational" decisions. I do not think this will ever be true. People are like cattle when it comes to doing what is considered popular. I can tell someone they will save $XXX,000 by buying cheap used cars, but most will go out and lease a new BMW once they have extra cash.
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RobBennett
- Posts: 120
- Joined: Wed Aug 11, 2010 8:09 pm
- Contact:
"I'm not one to hold a man's reputation against him."
I can't say that I think too much of the idea of using the words of the most abusive poster in the history of the internet as a guide to developing a take re the reputation of Rob Bennett.
Here is the URL for my bio:
http://knol.google.com/k/rob-bennett/ro ... bysw7pgd/4#
You can read what more serious people think about the work that I have done in the investing field there. Here is small sample of the comments that have been made by big names in the field:
Michael Harr, founder of Walden Advisors, has described Valuation-Informed Indexing as "a very solid approach to investing."
Norbert Schenkler, a financial planner, performed an analysis of the historical record showing that: "The evidence is pretty incontrovertible. Valuation-Informed Indexing...is everywhere superior to Buy-and-Hold over ten-year periods."
Bill Schultheis, author of The New Coffeehouse Portfolio, exclaimed upon discovery of the investing materials available at www.PassionSaving.com: "Holy Toledo! This is great stuff!"
Carl Richards, owner of Clearwater Asset Management, wrote: "I have read everything I can about Valuation-Informed Indexing, and I agree with you that Buy-and-Hold Passive Investing is extremely problematic.... I think what you are doing has huge value."
The "People Are Talking" section of my site sets forth 75 such comments, some from big names, some from ordinary people whose financial lives were saved by learning from me the realities of stock investing that The Stock-Selling Industry does not want to get out. The "People Are Talking" section is on the left-hand side of the home page of my "A Rich Life" blog. Here is the URL for the home page of the blog:
http://arichlife.passionsaving.com/
This work is not the product of one guy sitting in a room thinking grand thoughts. I had help from hundreds of fine and generous people who shared their sincere thoughts at discussion boards and blogs in the days before honest posting on the SWR matter was banned. These people count. These people matter.
There is a reason why we have Free Speech protections in our Constitution. It is because any human being, no matter how smart he may think himself to be, can make a mistake. So long as other viewpoints are permitted, mistakes can be corrected before they do much harm. With Buy-and-Hold, people do not feel safe expressing their sincere beliefs. I have had numerous bloggers send me e-mails saying just that, that they are afraid of what will be done to them if they allow honest discussion of these questions.
That ain't nornal. That's aint right.
If the Buy-and-Holders had confidence in their beliefs, they would disassociate themselves from this sort of thing in every way possible. Not one has yet done so. That applies even for big-name experts, all the way up to John Bogle. Bogle was present at the Vanguard Diehards board when one of the most vicious smear campaigns in the history of the internet was being carried out to silence people who were pointing out the errors in the Old School SWR Studies. Bogle did nothing. I sent him an e-mail asking for his help. He still did nothing.
This goes to that issue of motivation referred to up above. This does not show that Bogle and the others knew that Buy-and-Hold was going to cause the second greatest economic crisis in U.S. history. I don't believe that he or any of the others knew that. But they know that their handling of valuations is the weak point of the investing strategy they recommend. So they rationalized tolerance of behavior that in other circumstances they would not tolerate for two seconds.
Is that not permitting marketing considerations to become dominate? It sure seems so to me. I am happy to hear any other reasonable explanation of what we have seen take place over the past eight years. My feeble mind is not capable of coming up with anything else. They don't know everything. That's no crime. But they very, very. very much do not want to know a lot of what they very, very, very much need to know. That's bad stuff. People putting themselves forward as experts need to know this stuff. They should be inviting tough questioning of their beliefs, not tolerating or even supporting efforts to silence it.
I want to help these people. I learned a lot of important, wonderful stuff from Bogle. I count him as a Hero of the First Rank to the Retire Early Movement. But I cannot help him until he gives me something to work with. It's hard to make serious progress on any of these questions until we all reach a consensus that at a bare minimum people should be permitted to post honestly on the results of numerical calculations. That's as basic as it gets. I mean, come on!
Rob
I can't say that I think too much of the idea of using the words of the most abusive poster in the history of the internet as a guide to developing a take re the reputation of Rob Bennett.
Here is the URL for my bio:
http://knol.google.com/k/rob-bennett/ro ... bysw7pgd/4#
You can read what more serious people think about the work that I have done in the investing field there. Here is small sample of the comments that have been made by big names in the field:
Michael Harr, founder of Walden Advisors, has described Valuation-Informed Indexing as "a very solid approach to investing."
Norbert Schenkler, a financial planner, performed an analysis of the historical record showing that: "The evidence is pretty incontrovertible. Valuation-Informed Indexing...is everywhere superior to Buy-and-Hold over ten-year periods."
Bill Schultheis, author of The New Coffeehouse Portfolio, exclaimed upon discovery of the investing materials available at www.PassionSaving.com: "Holy Toledo! This is great stuff!"
Carl Richards, owner of Clearwater Asset Management, wrote: "I have read everything I can about Valuation-Informed Indexing, and I agree with you that Buy-and-Hold Passive Investing is extremely problematic.... I think what you are doing has huge value."
The "People Are Talking" section of my site sets forth 75 such comments, some from big names, some from ordinary people whose financial lives were saved by learning from me the realities of stock investing that The Stock-Selling Industry does not want to get out. The "People Are Talking" section is on the left-hand side of the home page of my "A Rich Life" blog. Here is the URL for the home page of the blog:
http://arichlife.passionsaving.com/
This work is not the product of one guy sitting in a room thinking grand thoughts. I had help from hundreds of fine and generous people who shared their sincere thoughts at discussion boards and blogs in the days before honest posting on the SWR matter was banned. These people count. These people matter.
There is a reason why we have Free Speech protections in our Constitution. It is because any human being, no matter how smart he may think himself to be, can make a mistake. So long as other viewpoints are permitted, mistakes can be corrected before they do much harm. With Buy-and-Hold, people do not feel safe expressing their sincere beliefs. I have had numerous bloggers send me e-mails saying just that, that they are afraid of what will be done to them if they allow honest discussion of these questions.
That ain't nornal. That's aint right.
If the Buy-and-Holders had confidence in their beliefs, they would disassociate themselves from this sort of thing in every way possible. Not one has yet done so. That applies even for big-name experts, all the way up to John Bogle. Bogle was present at the Vanguard Diehards board when one of the most vicious smear campaigns in the history of the internet was being carried out to silence people who were pointing out the errors in the Old School SWR Studies. Bogle did nothing. I sent him an e-mail asking for his help. He still did nothing.
This goes to that issue of motivation referred to up above. This does not show that Bogle and the others knew that Buy-and-Hold was going to cause the second greatest economic crisis in U.S. history. I don't believe that he or any of the others knew that. But they know that their handling of valuations is the weak point of the investing strategy they recommend. So they rationalized tolerance of behavior that in other circumstances they would not tolerate for two seconds.
Is that not permitting marketing considerations to become dominate? It sure seems so to me. I am happy to hear any other reasonable explanation of what we have seen take place over the past eight years. My feeble mind is not capable of coming up with anything else. They don't know everything. That's no crime. But they very, very. very much do not want to know a lot of what they very, very, very much need to know. That's bad stuff. People putting themselves forward as experts need to know this stuff. They should be inviting tough questioning of their beliefs, not tolerating or even supporting efforts to silence it.
I want to help these people. I learned a lot of important, wonderful stuff from Bogle. I count him as a Hero of the First Rank to the Retire Early Movement. But I cannot help him until he gives me something to work with. It's hard to make serious progress on any of these questions until we all reach a consensus that at a bare minimum people should be permitted to post honestly on the results of numerical calculations. That's as basic as it gets. I mean, come on!
Rob
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RobBennett
- Posts: 120
- Joined: Wed Aug 11, 2010 8:09 pm
- Contact:
"The system is designed for buy and hold so the economy can appear more stable. The system goes bust if everyone jumps ship in bad times."
It's a disaster if everyone jumps ship in bad times. That's the worst of all scenarios. That's the one that will put us in the Second Great Depression.
My view is that we encourage jumping when we tell people to ignore valuations. Market prices are self-regulating so long as people understand that it is in their self-interest to lower their stock allocations whenever prices go up. If we spent the money we now spend promoting Buy-and-Hold promoting Valuation-Informed Indexing, we would have a fa more stable economy. At least it seems so to me.
"You are also assuming that the general public can make "rational" decisions. I do not think this will ever be true."
Investors will never be perfectly rational. I agree, Matthew.
What I say is that we should work together as a society to help them become as rational as they are capable of being. We could provide people with tools showing them how much they delay their retirements by following a Buy-and-Hold strategy. Everyone wants to be able to retire early. So this sort of thing would appeal to people's self interest. People would be doing the right thing for the good of the general economy not because they are altruists but just because they want higher returns at less risk. Teaching people the realities is a win/win/win/win/win.
I have talked to a good number of big-name experts about this stuff. What I read between the lines of a lot of their statements is that they would absolutely love it if they could tell people all that they really know about how stock investing works. Shiller has said this explicitly. He said in an interview that he keeps quiet about a lot of what he knows because he would be viewed as "unprofessional" if he reported the realities.
Huh???!!!
Can you see how much leverage there would be in just opening the door to honest and informed discussions of every aspect of investing? We have tens of thousands of people working this field today, all afraid to say what really works. Turn that around and all the work that these people are doing becomes productive work instead of destructive work. We will be learning new things every day for years to come!
There is only one thing holding us back today. That is that the people who advocated Buy-and-Hold have a very hard time acknowledging that they were wrong. You know what? They don't even need to say that they were wrong for sure to get the ball rolling. If they were just able to say that it is POSSIBLE that they got some things wrong, that would be enough to open the door.
The full reality here is that the Buy-and-Holders revolutionized investing in a lot of very positive ways. These people are pioneers, heroes. If we could get them to become a tiny bit less defensive, we could use the foundation they suppled to build the greatest investment strategy ever known to man, something that would make our economy more productive than it has ever been.
I can see all this clear as day. I have studied this long enough to have a vision of some wonderful things. And the cost of getting there is close to zero. It's getting some people to say "I Was Wrong" or, at the least, "I'm Not Sure." And the alternative is living through the Second Great Depression!
I wish that others could see all this as clearly as I can. Seeing what I see, it is very hard not to feel that I should be working it as hard as I possibly can. I am always going to want to make myself available to help people with whatever questions they have.
I believe that in time everyone is going to come around. The case is so strong that I do not see any other way it can turn out. But I do worry that we are going to wait until the damage to our economic and political systems will have been so great that we will not be able to salvage things.
I believe that our entire system is built on a growth concept. When we as a people become hostile to growth, I believe we are finished. I don't think that majority is even a tiny bit hostile to growth. But I do think that this can be said of some of those who have developed investment studies or calculators or books in recent decades. They feel that they've got theirs and they don't want anyone rocking the boat no matter how much human misery the failed ideas cause. This aspect of all this makes me very sad.
But I am optimistic overall. I certainly try to be. Once you give up hope for the future, you might as well just hang it up, no? So I just try to hang in there making the pitch for a better way than the one that brought us to where we are today.
Rob
It's a disaster if everyone jumps ship in bad times. That's the worst of all scenarios. That's the one that will put us in the Second Great Depression.
My view is that we encourage jumping when we tell people to ignore valuations. Market prices are self-regulating so long as people understand that it is in their self-interest to lower their stock allocations whenever prices go up. If we spent the money we now spend promoting Buy-and-Hold promoting Valuation-Informed Indexing, we would have a fa more stable economy. At least it seems so to me.
"You are also assuming that the general public can make "rational" decisions. I do not think this will ever be true."
Investors will never be perfectly rational. I agree, Matthew.
What I say is that we should work together as a society to help them become as rational as they are capable of being. We could provide people with tools showing them how much they delay their retirements by following a Buy-and-Hold strategy. Everyone wants to be able to retire early. So this sort of thing would appeal to people's self interest. People would be doing the right thing for the good of the general economy not because they are altruists but just because they want higher returns at less risk. Teaching people the realities is a win/win/win/win/win.
I have talked to a good number of big-name experts about this stuff. What I read between the lines of a lot of their statements is that they would absolutely love it if they could tell people all that they really know about how stock investing works. Shiller has said this explicitly. He said in an interview that he keeps quiet about a lot of what he knows because he would be viewed as "unprofessional" if he reported the realities.
Huh???!!!
Can you see how much leverage there would be in just opening the door to honest and informed discussions of every aspect of investing? We have tens of thousands of people working this field today, all afraid to say what really works. Turn that around and all the work that these people are doing becomes productive work instead of destructive work. We will be learning new things every day for years to come!
There is only one thing holding us back today. That is that the people who advocated Buy-and-Hold have a very hard time acknowledging that they were wrong. You know what? They don't even need to say that they were wrong for sure to get the ball rolling. If they were just able to say that it is POSSIBLE that they got some things wrong, that would be enough to open the door.
The full reality here is that the Buy-and-Holders revolutionized investing in a lot of very positive ways. These people are pioneers, heroes. If we could get them to become a tiny bit less defensive, we could use the foundation they suppled to build the greatest investment strategy ever known to man, something that would make our economy more productive than it has ever been.
I can see all this clear as day. I have studied this long enough to have a vision of some wonderful things. And the cost of getting there is close to zero. It's getting some people to say "I Was Wrong" or, at the least, "I'm Not Sure." And the alternative is living through the Second Great Depression!
I wish that others could see all this as clearly as I can. Seeing what I see, it is very hard not to feel that I should be working it as hard as I possibly can. I am always going to want to make myself available to help people with whatever questions they have.
I believe that in time everyone is going to come around. The case is so strong that I do not see any other way it can turn out. But I do worry that we are going to wait until the damage to our economic and political systems will have been so great that we will not be able to salvage things.
I believe that our entire system is built on a growth concept. When we as a people become hostile to growth, I believe we are finished. I don't think that majority is even a tiny bit hostile to growth. But I do think that this can be said of some of those who have developed investment studies or calculators or books in recent decades. They feel that they've got theirs and they don't want anyone rocking the boat no matter how much human misery the failed ideas cause. This aspect of all this makes me very sad.
But I am optimistic overall. I certainly try to be. Once you give up hope for the future, you might as well just hang it up, no? So I just try to hang in there making the pitch for a better way than the one that brought us to where we are today.
Rob
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Steve Austin
- Posts: 177
- Joined: Thu Jul 22, 2010 12:17 am
RobBennett, I'm not familiar with your blog, website, or other writings. Would you point me (us) to some links where we can see you practicing what you preach? I certainly don't disagree with most of what you say, but far more important (to me) than *what you say* is *what you do/don't do* w.r.t. buy-and-hold vis valuation index investing.
Also, doesn't seem like you'll find a lot of dissenters to your outlook here, based on the responding posters thus far. Therefore, I ask you (and please take this in the most innocent manner possible): what do you have to gain if you help "the people"? Are we talking friendly help here, or is it professional help (fee-based financial advice or something) Just want to understand where you're coming from before I think about engaging you on any of the specific points you've made. If just friendly help, then my experience (albeit limited to my 40 years on the planet) is that people respond well to leadership and actions, not so well to prodding and words. My opinion is that the best you can do is lay out what you believe, point people to it if they ask, and otherwise let them decide to act (or not) on their own. For me personally, concepts and viewpoints always stick better with me when I investigate them for myself, vis having them presented to me fully formed without having to exert effort on my part to embrace them. Of course, I'm not one of the people you want to help/convince (I don't do any index investing whatsoever), but I hope that my response isn't interpreted as unwelcome friendly advice.
Also, doesn't seem like you'll find a lot of dissenters to your outlook here, based on the responding posters thus far. Therefore, I ask you (and please take this in the most innocent manner possible): what do you have to gain if you help "the people"? Are we talking friendly help here, or is it professional help (fee-based financial advice or something) Just want to understand where you're coming from before I think about engaging you on any of the specific points you've made. If just friendly help, then my experience (albeit limited to my 40 years on the planet) is that people respond well to leadership and actions, not so well to prodding and words. My opinion is that the best you can do is lay out what you believe, point people to it if they ask, and otherwise let them decide to act (or not) on their own. For me personally, concepts and viewpoints always stick better with me when I investigate them for myself, vis having them presented to me fully formed without having to exert effort on my part to embrace them. Of course, I'm not one of the people you want to help/convince (I don't do any index investing whatsoever), but I hope that my response isn't interpreted as unwelcome friendly advice.
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RobBennett
- Posts: 120
- Joined: Wed Aug 11, 2010 8:09 pm
- Contact:
"Would you point me (us) to some links where we can see you practicing what you preach?"
If you go to the home page of the blog, there are links all down the right-hand side to hundreds of articles, calculators, podcasts, Google Knols and Guest Blog Entries on the Valuation-Informed Indexing concept. Those who have an interest should also check out the www.Early-Retirement-Planning-Insights.com site. That site was owned by John Walter Russell, a numbers guy who I met at the Motley Fool board who spent the last seven years of his life doing the research that backs up this investing model (John died in October 2009). Here is another link to the home page of the blog:
http://arichlife.passionsaving.com/
I am now also writing two weekly columns on VII, one at the Value Walk site and one at the Death by 1,000 Papercuts site. So there is tons of material available to anyone wanting to examine the concept.
My sense is that that is not what you are looking for, Steve. You are looking for information on what I have done personally, right?
There's not much to tell. I was putting together a Retire Early plan back in 1996 (I handed in my resignation from my corporate job on August 1, 2000). One of the things I read in preparation was John Bogle's book "Common Sense on Mutual Funds." Bogle explains in that book that valuations affect long-term returns (he describes Reversion to the Mean as an "Iron Law" of stock investing). I knew from reading those words that the Old School SWR studies could not possibly be right (these studies contain no valuation adjustment whatsoever). So I knew that the SWR at the prices that applied at that time had to be a good bit less than 4 percent (the number reported in the studies to be the SWR).
I was able to get a much higher SWR from super-safe asset classes like certificates of deposit. So that is what I went with in 1996. I took all my money out of stocks and moved it to CDs. I was saving like a madman at the time. So the monthly contributions were huge. When TIPS and IBonds paying 3.5 real became available, I moved all most of my money to them (keeping a small amount in CDs). I have not bought any stocks in the years since. So there's not much to tell. It's an extremely simple portfolio we are talking about here.
If you are saying that you want proof that what I am saying is true, I think that probably the best way to get that would be to look at the Post Archives of The Great Safe Withdrawal Rate Debate. These discussions about valuations have been going on at numerous boards and blogs for over eight years now. I kicked off the debate with a post at Motley Fool on May 13, 2002. I have said that I have had a zero stock allocation going back to 1996 thousands and thousands of time at scores of different places. I suppose that the fact that I said this long before the stock crash lends some credibility to what I say. The fact that my story has been 100 percent consistent for so long also lends some credibility. I don't know what proof better than that I could offer.
One of those comments at the link where I provide the 101 posts in support of the idea of permitting honest posting on SWRs is from a guy named "BenSolar." He says that I am the only person he knows who has opted entirely out of the stock bubble and that I have done very well for myself by making this choice. Does that count as proof? There are hundreds of such posts at the Motley Fool board. I was the most popular poster at that site in the days before the smear campaigns. So there were hundreds of posts from friends of mine backing up what I say. The idea that I would ever consider not telling the 100 percent straight story never entered a single person's mind in the days before the smear campaigns. Those posts are all still there, if they help. I don't have links handy, but if this is really a big deal for you, I am sure that I could find some.
I went to zero stocks in 1996. My money has been in TIPS and IBonds paying 3.5 percent real in the time since. I have a tiny bit in CDs and a tiny bit in gold/silver. That's it. There's nothing more to tell. I plan to move to stocks when the P/E10 level drops below 10. The long-term value proposition is amazing for stocks purchased at that price. You are talking about a annualized return of close to 15 percent real. Those are the sorts of prices at which stock investing makes middle-class people rich.
Rob
If you go to the home page of the blog, there are links all down the right-hand side to hundreds of articles, calculators, podcasts, Google Knols and Guest Blog Entries on the Valuation-Informed Indexing concept. Those who have an interest should also check out the www.Early-Retirement-Planning-Insights.com site. That site was owned by John Walter Russell, a numbers guy who I met at the Motley Fool board who spent the last seven years of his life doing the research that backs up this investing model (John died in October 2009). Here is another link to the home page of the blog:
http://arichlife.passionsaving.com/
I am now also writing two weekly columns on VII, one at the Value Walk site and one at the Death by 1,000 Papercuts site. So there is tons of material available to anyone wanting to examine the concept.
My sense is that that is not what you are looking for, Steve. You are looking for information on what I have done personally, right?
There's not much to tell. I was putting together a Retire Early plan back in 1996 (I handed in my resignation from my corporate job on August 1, 2000). One of the things I read in preparation was John Bogle's book "Common Sense on Mutual Funds." Bogle explains in that book that valuations affect long-term returns (he describes Reversion to the Mean as an "Iron Law" of stock investing). I knew from reading those words that the Old School SWR studies could not possibly be right (these studies contain no valuation adjustment whatsoever). So I knew that the SWR at the prices that applied at that time had to be a good bit less than 4 percent (the number reported in the studies to be the SWR).
I was able to get a much higher SWR from super-safe asset classes like certificates of deposit. So that is what I went with in 1996. I took all my money out of stocks and moved it to CDs. I was saving like a madman at the time. So the monthly contributions were huge. When TIPS and IBonds paying 3.5 real became available, I moved all most of my money to them (keeping a small amount in CDs). I have not bought any stocks in the years since. So there's not much to tell. It's an extremely simple portfolio we are talking about here.
If you are saying that you want proof that what I am saying is true, I think that probably the best way to get that would be to look at the Post Archives of The Great Safe Withdrawal Rate Debate. These discussions about valuations have been going on at numerous boards and blogs for over eight years now. I kicked off the debate with a post at Motley Fool on May 13, 2002. I have said that I have had a zero stock allocation going back to 1996 thousands and thousands of time at scores of different places. I suppose that the fact that I said this long before the stock crash lends some credibility to what I say. The fact that my story has been 100 percent consistent for so long also lends some credibility. I don't know what proof better than that I could offer.
One of those comments at the link where I provide the 101 posts in support of the idea of permitting honest posting on SWRs is from a guy named "BenSolar." He says that I am the only person he knows who has opted entirely out of the stock bubble and that I have done very well for myself by making this choice. Does that count as proof? There are hundreds of such posts at the Motley Fool board. I was the most popular poster at that site in the days before the smear campaigns. So there were hundreds of posts from friends of mine backing up what I say. The idea that I would ever consider not telling the 100 percent straight story never entered a single person's mind in the days before the smear campaigns. Those posts are all still there, if they help. I don't have links handy, but if this is really a big deal for you, I am sure that I could find some.
I went to zero stocks in 1996. My money has been in TIPS and IBonds paying 3.5 percent real in the time since. I have a tiny bit in CDs and a tiny bit in gold/silver. That's it. There's nothing more to tell. I plan to move to stocks when the P/E10 level drops below 10. The long-term value proposition is amazing for stocks purchased at that price. You are talking about a annualized return of close to 15 percent real. Those are the sorts of prices at which stock investing makes middle-class people rich.
Rob
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RobBennett
- Posts: 120
- Joined: Wed Aug 11, 2010 8:09 pm
- Contact:
"what do you have to gain if you help "the people"? Are we talking friendly help here, or is it professional help (fee-based financial advice or something) Just want to understand where you're coming from before I think about engaging you on any of the specific points you've made. "
That's certainly a fair and smart question, Steve.
There is certainly nothing fee-based here. I have nothing to sell. I am writing a book on investing. When I have finished it, I will have something to sell. But that's a long ways off. And I have been working this full time for eight years with zero to sell. So I think it would be fair to say that it is established that I am not doing this to make a short-term killing.
I am a journalist. For many years I worked at tax newsletters covering Congress. My saving goal was to put enough aside so that I could build an internet business promoting personal finance ideas followed by the most effective savers and investors in the world. In preparation for this, I built the Retire Early board at Motley Fool into the most successful board in that site's history. I also wrote a special report ("Secrets of Retiring Early") that became the #1 bestseller in the history of the Soapbox.com site (now defunct). The Motley Fool board was destroyed as a consequence of the abusive posting, as were a number of others that were formed by people seeking to escape the abusive individuals who had taken over that board.
I do hope to make a buck or two from all this. I want to rebuild all the boards that have been destroyed (there are about half a dozen of them). I believe that the internet discussion board is a powerful communications medium of the future. I want to set up communities of the smartest people in these fields, develop breakthrough ideas, and then share those ideas with the millions of middle-class people who can benefit from them. I can make money either through advertising, or through selling special reports, or through selling books, or whatever. There are of course lots of good options in this field.
I don't charge for anything at the site. There are 200 one-hour podcasts available there on different aspects of the VII strategy. There are also four unique calculators that it cost me thousands of dollars and years of effort to produce. All are free to anyone who cares to make use of them. I was talking to a fellow on the phone last night who is hundreds of thousands of dollars ahead as a result of what he learned listening to the podcasts. He's a big fan!
My "problem" is that I have been 10 times more successful on the content side than I set out to be. I knew from my experience at Motley Fool that early retirees knew things about personal finance that cannot be learned by reading every book in the biggest library in the world. So I knew that the potential of using internet boards and blogs to mine new ideas was huge. But VII is a bigger breakthrough than I thought possible.
It just should not have been possible for anyone to have done what I have done. All that I did was to take Shiller's findings and put them to practical use. Shiller gets the theory right and he shows why Buy-and-Hold can never work. But he never spells out in practical terms what investors should do. He's an academic, so he just doesn't focus on that. I do. I spell it all out. Those who get what I am saying love it. But those who are pushing Buy-and-Hold hate it because it is viewed as a huge threat for me to put forward a strategy that is superior in so many different ways.
The bottom line here is that I am certainly not a pure altruist. I have dreams of making millions from this. But in eight years of daily posting I have never let money concerns influence what I say. I was wildly popular in the days when I posted only about saving and never investing. I have a book for sale at my site on saving. If I had spent those eight years pushing that book, I would have made a lot more money than I made pushing VII (I have made zero from VII).
But I cannot look my fellow community members in the eye if I lie to them about SWRs. I sweated it when I was putting together my Retire Early plan. It was a nightmare scenario for me to get the numbers wrong in my plan. So I am physically incapable of posting dishonestly on that question. That's something I will never do. I will either make it posting honestly or I will not make it at all.
I am not a saint. I am not in it just for the bucks. I was making a six-figure salary at my corporate job. The entire point of my Retire Early plan was to be able to make the shift to doing more fulfilling work. The work I am doing with VII is by far the most fulfilling work I have ever done. But I do at some point need to make a buck from it. My plan requires that (I did not save enough for a full retirement, only for a shift to a field where I might make a good bit less). So I do want to make money. But I want to do that helping aspiring early retirees, not destroying them. That should be possible in this field. If it is not, there is something terribly, terribly wrong with the field.
Rob
That's certainly a fair and smart question, Steve.
There is certainly nothing fee-based here. I have nothing to sell. I am writing a book on investing. When I have finished it, I will have something to sell. But that's a long ways off. And I have been working this full time for eight years with zero to sell. So I think it would be fair to say that it is established that I am not doing this to make a short-term killing.
I am a journalist. For many years I worked at tax newsletters covering Congress. My saving goal was to put enough aside so that I could build an internet business promoting personal finance ideas followed by the most effective savers and investors in the world. In preparation for this, I built the Retire Early board at Motley Fool into the most successful board in that site's history. I also wrote a special report ("Secrets of Retiring Early") that became the #1 bestseller in the history of the Soapbox.com site (now defunct). The Motley Fool board was destroyed as a consequence of the abusive posting, as were a number of others that were formed by people seeking to escape the abusive individuals who had taken over that board.
I do hope to make a buck or two from all this. I want to rebuild all the boards that have been destroyed (there are about half a dozen of them). I believe that the internet discussion board is a powerful communications medium of the future. I want to set up communities of the smartest people in these fields, develop breakthrough ideas, and then share those ideas with the millions of middle-class people who can benefit from them. I can make money either through advertising, or through selling special reports, or through selling books, or whatever. There are of course lots of good options in this field.
I don't charge for anything at the site. There are 200 one-hour podcasts available there on different aspects of the VII strategy. There are also four unique calculators that it cost me thousands of dollars and years of effort to produce. All are free to anyone who cares to make use of them. I was talking to a fellow on the phone last night who is hundreds of thousands of dollars ahead as a result of what he learned listening to the podcasts. He's a big fan!
My "problem" is that I have been 10 times more successful on the content side than I set out to be. I knew from my experience at Motley Fool that early retirees knew things about personal finance that cannot be learned by reading every book in the biggest library in the world. So I knew that the potential of using internet boards and blogs to mine new ideas was huge. But VII is a bigger breakthrough than I thought possible.
It just should not have been possible for anyone to have done what I have done. All that I did was to take Shiller's findings and put them to practical use. Shiller gets the theory right and he shows why Buy-and-Hold can never work. But he never spells out in practical terms what investors should do. He's an academic, so he just doesn't focus on that. I do. I spell it all out. Those who get what I am saying love it. But those who are pushing Buy-and-Hold hate it because it is viewed as a huge threat for me to put forward a strategy that is superior in so many different ways.
The bottom line here is that I am certainly not a pure altruist. I have dreams of making millions from this. But in eight years of daily posting I have never let money concerns influence what I say. I was wildly popular in the days when I posted only about saving and never investing. I have a book for sale at my site on saving. If I had spent those eight years pushing that book, I would have made a lot more money than I made pushing VII (I have made zero from VII).
But I cannot look my fellow community members in the eye if I lie to them about SWRs. I sweated it when I was putting together my Retire Early plan. It was a nightmare scenario for me to get the numbers wrong in my plan. So I am physically incapable of posting dishonestly on that question. That's something I will never do. I will either make it posting honestly or I will not make it at all.
I am not a saint. I am not in it just for the bucks. I was making a six-figure salary at my corporate job. The entire point of my Retire Early plan was to be able to make the shift to doing more fulfilling work. The work I am doing with VII is by far the most fulfilling work I have ever done. But I do at some point need to make a buck from it. My plan requires that (I did not save enough for a full retirement, only for a shift to a field where I might make a good bit less). So I do want to make money. But I want to do that helping aspiring early retirees, not destroying them. That should be possible in this field. If it is not, there is something terribly, terribly wrong with the field.
Rob
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RobBennett
- Posts: 120
- Joined: Wed Aug 11, 2010 8:09 pm
- Contact:
"If just friendly help, then my experience (albeit limited to my 40 years on the planet) is that people respond well to leadership and actions, not so well to prodding and words. My opinion is that the best you can do is lay out what you believe, point people to it if they ask, and otherwise let them decide to act (or not) on their own. For me personally, concepts and viewpoints always stick better with me when I investigate them for myself, vis having them presented to me fully formed without having to exert effort on my part to embrace them. "
These are smart words, Steve. I like the approach you are describing. But I need to share with you (and others listening in) a problem that applies with following this approach in this particular case.
I was the most loved poster at the entire Motley Fool site on the morning of May 13, 2002. I had some investing ideas I wanted to share. There were hundreds of people who wanted to hear them. There were also thousands of people who were uncomfortable with them. How should a situation like that be handled?
The normal way that the humans handle such a thing is that the people interested in the new approach discuss it to their hearts' content and the people not interested discuss what they are interested in to their hearts' content. Everyone is happy. Everyone remains friends. All is groovy.
It didn't work that way re this one. Not at Motley Fool, not anywhere else. Buy-and-Holders are threatened by these ideas. A LOT. So they are not happy to let others learn what they want to learn. They jump in on every thread with all sorts of hateful stuff that drives all sane people away in repulsion. I have seen this happen thousands of times. Threads start off like gangbusters, providing great learning experiences. And then about 10 extremely abusive people put up scores of angry, hateful posts and everybody capable of making a constructive contribution runs for the hills.
We should not let these sorts of people control what we learn. But a good number of us have unfortunately elected to do so for eight years now. I will be a happy man when we turn that around. All it will take is a few brave and loving people. When good people speak up, the bullies run. Bullies are at heart cowards. Anyone who has gone to grade school knows this.
I cannot just put up a post here describing VII and leave it at that. I wish it could be so simple. The core principle of VII is that long-term timing is REQUIRED for long-term success. As soon as I get to the part about timing, someone always jumps up and repeats the most popular of the Buy-and-Hold marketing slogans, that timing doesn't work. I cannot get to first base if I do not describe the basics of how the strategy works. And the basics of what works is the very thing that is most offensive to Buy-and-Holders.
I would be grateful if you would tell me, GIVEN THESE REALITIES, how you would proceed, Steve.
You are right that people need to be left to just ponder the ideas on their own. You are right that people do not respond well to pushing. We agree on all that.
My problem is that what I am pushing for is just to be able to say what I believe. I shouldn't have to push for that. The right of everyone to post honestly should be guaranteed.
I can tell you what will happen if that right is respected. It will start with just me saying these things and then, after some time passes, there will be a second voice and then a third and then 50 and then 500 and then 50,000. It will grow. I have spoken to HUNDREDS of people who view VII as the investing model of the future. But lots of them will not post in an environment in which discussion boards focused on ridiculing them are set up as their punishment for helping people out in this way. People need to feel safe first. Then they will give of themselves.
Again, I have respect for Buy-and-Holders and I have affection for Buy-and-Holders. They are going to love this stuff themselves once they come to understand it fully. But that is going to take time. I cannot do a brain dump and transfer what it has taken me eight years to learn into everybody's head in 10 minutes. We need to do it just the way you say, Steve. People need to be presented with both sides and over time decide for themselves.
The key is that there should be mutual respect on the two "sides." I have tough words to say re the Buy-and-Hold strategy but not re the people who advocate it. I think of the people who advocate it as being my friends and I want them to feel the same way towards me. We all share the same goal. We all want to learn how to invest effectively. I am searching for the magic words that would help the Buy-and-Holders calm down and just accept that perhaps we didn't know every last thing there is to know about investing on the day "A Random Walk Down Wall Street" was published. Perhaps we can walk forward together to some very exciting places.
My partner John Walter Russell did as much as I have done to develop the VII concept. He had a catch phrase that he put at the bottom of every one of his posts. He said: "Have Fun!" I think that's perfect. We all should be having fun with this. If we think of it as a fun thing to learn, there is no way we can ever go wrong. We are not on different sides. We are all on the same side.
I hope that makes sense to some people. I am not God. I do not know everything. I do not claim to know everything. But I do believe very strongly that I am obligated to post my sincere beliefs whenever I post. The Buy-and-Holders do that, do they not? They sincerely believe and they are able to post what they believe. Why should the anti-Buy-and-Holders not be permitted to do the same? How can we ever advance in our understanding if only one point of view may be expressed?
What if the Buy-and-Holders really are wrong? Where will that leave us if as a society we made a determination that no alternate point of view could ever be expressed? I think we all need to hear both sides if we are to have any confidence in the conclusions we each individually come to.
Rob
These are smart words, Steve. I like the approach you are describing. But I need to share with you (and others listening in) a problem that applies with following this approach in this particular case.
I was the most loved poster at the entire Motley Fool site on the morning of May 13, 2002. I had some investing ideas I wanted to share. There were hundreds of people who wanted to hear them. There were also thousands of people who were uncomfortable with them. How should a situation like that be handled?
The normal way that the humans handle such a thing is that the people interested in the new approach discuss it to their hearts' content and the people not interested discuss what they are interested in to their hearts' content. Everyone is happy. Everyone remains friends. All is groovy.
It didn't work that way re this one. Not at Motley Fool, not anywhere else. Buy-and-Holders are threatened by these ideas. A LOT. So they are not happy to let others learn what they want to learn. They jump in on every thread with all sorts of hateful stuff that drives all sane people away in repulsion. I have seen this happen thousands of times. Threads start off like gangbusters, providing great learning experiences. And then about 10 extremely abusive people put up scores of angry, hateful posts and everybody capable of making a constructive contribution runs for the hills.
We should not let these sorts of people control what we learn. But a good number of us have unfortunately elected to do so for eight years now. I will be a happy man when we turn that around. All it will take is a few brave and loving people. When good people speak up, the bullies run. Bullies are at heart cowards. Anyone who has gone to grade school knows this.
I cannot just put up a post here describing VII and leave it at that. I wish it could be so simple. The core principle of VII is that long-term timing is REQUIRED for long-term success. As soon as I get to the part about timing, someone always jumps up and repeats the most popular of the Buy-and-Hold marketing slogans, that timing doesn't work. I cannot get to first base if I do not describe the basics of how the strategy works. And the basics of what works is the very thing that is most offensive to Buy-and-Holders.
I would be grateful if you would tell me, GIVEN THESE REALITIES, how you would proceed, Steve.
You are right that people need to be left to just ponder the ideas on their own. You are right that people do not respond well to pushing. We agree on all that.
My problem is that what I am pushing for is just to be able to say what I believe. I shouldn't have to push for that. The right of everyone to post honestly should be guaranteed.
I can tell you what will happen if that right is respected. It will start with just me saying these things and then, after some time passes, there will be a second voice and then a third and then 50 and then 500 and then 50,000. It will grow. I have spoken to HUNDREDS of people who view VII as the investing model of the future. But lots of them will not post in an environment in which discussion boards focused on ridiculing them are set up as their punishment for helping people out in this way. People need to feel safe first. Then they will give of themselves.
Again, I have respect for Buy-and-Holders and I have affection for Buy-and-Holders. They are going to love this stuff themselves once they come to understand it fully. But that is going to take time. I cannot do a brain dump and transfer what it has taken me eight years to learn into everybody's head in 10 minutes. We need to do it just the way you say, Steve. People need to be presented with both sides and over time decide for themselves.
The key is that there should be mutual respect on the two "sides." I have tough words to say re the Buy-and-Hold strategy but not re the people who advocate it. I think of the people who advocate it as being my friends and I want them to feel the same way towards me. We all share the same goal. We all want to learn how to invest effectively. I am searching for the magic words that would help the Buy-and-Holders calm down and just accept that perhaps we didn't know every last thing there is to know about investing on the day "A Random Walk Down Wall Street" was published. Perhaps we can walk forward together to some very exciting places.
My partner John Walter Russell did as much as I have done to develop the VII concept. He had a catch phrase that he put at the bottom of every one of his posts. He said: "Have Fun!" I think that's perfect. We all should be having fun with this. If we think of it as a fun thing to learn, there is no way we can ever go wrong. We are not on different sides. We are all on the same side.
I hope that makes sense to some people. I am not God. I do not know everything. I do not claim to know everything. But I do believe very strongly that I am obligated to post my sincere beliefs whenever I post. The Buy-and-Holders do that, do they not? They sincerely believe and they are able to post what they believe. Why should the anti-Buy-and-Holders not be permitted to do the same? How can we ever advance in our understanding if only one point of view may be expressed?
What if the Buy-and-Holders really are wrong? Where will that leave us if as a society we made a determination that no alternate point of view could ever be expressed? I think we all need to hear both sides if we are to have any confidence in the conclusions we each individually come to.
Rob
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RobBennett
- Posts: 120
- Joined: Wed Aug 11, 2010 8:09 pm
- Contact:
"I hope that my response isn't interpreted as unwelcome friendly advice."
It's not, Steve.
We need frankness from as many people as possible to move forward. You and all others should ask the questions that are truly on your minds. I hope I responded in at least a somewhat helpful way.
I am grateful for you taking the time to lay out your concerns, Steve. I wish you the best of luck with your non-indexing strategies (I think indexing is best for the typical investor but I also believe that non-indexing strategies can provide better results for those with the time and skill sets needed to pull then off).
Rob
It's not, Steve.
We need frankness from as many people as possible to move forward. You and all others should ask the questions that are truly on your minds. I hope I responded in at least a somewhat helpful way.
I am grateful for you taking the time to lay out your concerns, Steve. I wish you the best of luck with your non-indexing strategies (I think indexing is best for the typical investor but I also believe that non-indexing strategies can provide better results for those with the time and skill sets needed to pull then off).
Rob
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Steve Austin
- Posts: 177
- Joined: Thu Jul 22, 2010 12:17 am
RobBennett said: "I went to zero stocks in 1996. My money has been in TIPS and IBonds paying 3.5 percent real in the time since. I have a tiny bit in CDs and a tiny bit in gold/silver. That's it. There's nothing more to tell. I plan to move to stocks when the P/E10 level drops below 10. The long-term value proposition is amazing for stocks purchased at that price. You are talking about a annualized return of close to 15 percent real. Those are the sorts of prices at which stock investing makes middle-class people rich."
That's an outstanding story, and is what I'm most interested in. It's a real portfolio over the course of 14+ years. In my amateur opinion, I think the above should be the centerpiece of any book that you write, because it's what you have done, it's where your expertise is. Then you can build and elaborate off of that, making your thorough points about the shortcomings of buy-and-hold when applied to index investing. If you lay it out from your perspective, I believe that people are more likely to follow than if you were to couch it as you telling them what *they* should do. If they like what you have done, they will consider it for themselves without you having to explicitly suggest that they should do it.
The only hazy points for me are:
* when you say "move to stocks", do you refer to common shares directly, common shares via stock-heavy open-ended mutual funds, ETFs, what?
* I have to admit that I haven't closely monitored the earnings yields for broad-market indices, but wondering if you could inform me as to whether the February 2009 ("bottom" of the bear market?) and April 2010 (flash crash) dipped to or near P/E of 10. Those were the most recent two times that I purchased shares of stock.
* what is your buy-in protocol once the level dips below 10? Backing up the truck, major slugs of capital redeployed? Or regimented purchases of small slugs over time, or perhaps hinged on deeper and deeper valuations (the value averaging approach)?
* there is another thread on this forum that discussed holding hard metals -- is that what you do, or what is your tiny bit gold/silver vehicle?
Thank you again for elaborating on your investment approach. I always enjoy ruminating over the portfolio actions of real investors. I'm still making my way through your deeper posts -- responses on those will have to come later.
That's an outstanding story, and is what I'm most interested in. It's a real portfolio over the course of 14+ years. In my amateur opinion, I think the above should be the centerpiece of any book that you write, because it's what you have done, it's where your expertise is. Then you can build and elaborate off of that, making your thorough points about the shortcomings of buy-and-hold when applied to index investing. If you lay it out from your perspective, I believe that people are more likely to follow than if you were to couch it as you telling them what *they* should do. If they like what you have done, they will consider it for themselves without you having to explicitly suggest that they should do it.
The only hazy points for me are:
* when you say "move to stocks", do you refer to common shares directly, common shares via stock-heavy open-ended mutual funds, ETFs, what?
* I have to admit that I haven't closely monitored the earnings yields for broad-market indices, but wondering if you could inform me as to whether the February 2009 ("bottom" of the bear market?) and April 2010 (flash crash) dipped to or near P/E of 10. Those were the most recent two times that I purchased shares of stock.
* what is your buy-in protocol once the level dips below 10? Backing up the truck, major slugs of capital redeployed? Or regimented purchases of small slugs over time, or perhaps hinged on deeper and deeper valuations (the value averaging approach)?
* there is another thread on this forum that discussed holding hard metals -- is that what you do, or what is your tiny bit gold/silver vehicle?
Thank you again for elaborating on your investment approach. I always enjoy ruminating over the portfolio actions of real investors. I'm still making my way through your deeper posts -- responses on those will have to come later.
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jacob
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You can track earnings yields at http://www.multpl.com/
Note that the above does not use trailing 12 month (TTM) earnings, but trailing 10 years!
As you can see, buying at yields > 10% (and typically selling once yields < 5%) does lead to spectacular gains. It does require severe amounts of backbone to stay with this strategy. You may be out of stocks for decades.
Over the past century, you would have (rough years)
Bought in 1916.
Sold in 1928.
Bought in 1932.
Sold in 1936.
Bought in 1942.
Sold in 1962.
Bought in 1974.
Sold in 1993.
That's it. Currently, you'd still be out of stocks---getting close to two decades. Alternative, you could be in a conservative yield or short position instead of cash. Of course going short in 1993 would have been scary indeed.
Note that the above does not use trailing 12 month (TTM) earnings, but trailing 10 years!
As you can see, buying at yields > 10% (and typically selling once yields < 5%) does lead to spectacular gains. It does require severe amounts of backbone to stay with this strategy. You may be out of stocks for decades.
Over the past century, you would have (rough years)
Bought in 1916.
Sold in 1928.
Bought in 1932.
Sold in 1936.
Bought in 1942.
Sold in 1962.
Bought in 1974.
Sold in 1993.
That's it. Currently, you'd still be out of stocks---getting close to two decades. Alternative, you could be in a conservative yield or short position instead of cash. Of course going short in 1993 would have been scary indeed.
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RobBennett
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"when you say "move to stocks", do you refer to common shares directly, common shares via stock-heavy open-ended mutual funds, ETFs, what?"
The current plan is to move to a broad U.S. index fund. If time opened up to me to pick individual stocks (Value Investing), I would do that. But I don't today have the time available to me to make that work.
<i>wondering if you could inform me as to whether the February 2009 ("bottom" of the bear market?) and April 2010 (flash crash) dipped to or near P/E of 10.</i>
We got close in March 2009. We got to a P/E10 level of 12. If you listen to my podcasts from that time, you will see that I was saying at the time that stocks offered a strong long-term value proposition. I did not pull the trigger at the time, but that was a judgment call on which reasonable people could have gone either way. You could certainly make a strong case for buying stocks at that time. I believe that those who purchased at those prices will do well as long as they hold through what will probably be some rough years.
"what is your buy-in protocol once the level dips below 10?"
I would go to 50 percent stocks at a P/E10 of 10 or perhaps 11 or 12. Then go to 80 percent if we got to 8. Then I would just stick with what I had if valuations went up and down at that point. I am confident that, if you buy at 8 or 10, you are going to end up doing well in the long term. The only other possibility is that the entire economy might go down, in which case what does it really matter?
"there is another thread on this forum that discussed holding hard metals -- is that what you do, or what is your tiny bit gold/silver vehicle?"
I have the gold coins and a silver bar. I think these are good investments and I have done well with them. But I have never felt comfortable going with a high allocation in gold or silver. I just like to see something being produced from the investment. I basically am a stocks guy. The only reason that I like TIPS and IBonds is that they let me preserve assets to invest in stocks at another time. My preference would be if the stock market were more stable and I could invest 70 percent or 80 percent in stocks at all times. I don't make any effort to study anything else. I am NOT an investing expert. I do not care to become one. I am a journalist. That's all I ever set out to be. This other stuff is just add-on stuff that circumstances forced on me.
"Thank you again for elaborating on your investment approach."
Thanks for your good questions and for your kind responses, Steve. When it's done that way, it's fun!
Rob
The current plan is to move to a broad U.S. index fund. If time opened up to me to pick individual stocks (Value Investing), I would do that. But I don't today have the time available to me to make that work.
<i>wondering if you could inform me as to whether the February 2009 ("bottom" of the bear market?) and April 2010 (flash crash) dipped to or near P/E of 10.</i>
We got close in March 2009. We got to a P/E10 level of 12. If you listen to my podcasts from that time, you will see that I was saying at the time that stocks offered a strong long-term value proposition. I did not pull the trigger at the time, but that was a judgment call on which reasonable people could have gone either way. You could certainly make a strong case for buying stocks at that time. I believe that those who purchased at those prices will do well as long as they hold through what will probably be some rough years.
"what is your buy-in protocol once the level dips below 10?"
I would go to 50 percent stocks at a P/E10 of 10 or perhaps 11 or 12. Then go to 80 percent if we got to 8. Then I would just stick with what I had if valuations went up and down at that point. I am confident that, if you buy at 8 or 10, you are going to end up doing well in the long term. The only other possibility is that the entire economy might go down, in which case what does it really matter?
"there is another thread on this forum that discussed holding hard metals -- is that what you do, or what is your tiny bit gold/silver vehicle?"
I have the gold coins and a silver bar. I think these are good investments and I have done well with them. But I have never felt comfortable going with a high allocation in gold or silver. I just like to see something being produced from the investment. I basically am a stocks guy. The only reason that I like TIPS and IBonds is that they let me preserve assets to invest in stocks at another time. My preference would be if the stock market were more stable and I could invest 70 percent or 80 percent in stocks at all times. I don't make any effort to study anything else. I am NOT an investing expert. I do not care to become one. I am a journalist. That's all I ever set out to be. This other stuff is just add-on stuff that circumstances forced on me.
"Thank you again for elaborating on your investment approach."
Thanks for your good questions and for your kind responses, Steve. When it's done that way, it's fun!
Rob
So what's an average guy (age 35) with most of his retirement dollars in a 401(k) or Roth to do? (Hypothetically of course.) Mostly by default, I have most of my 401(k) funds in a target date fund - because it has a low expense ratio compared to the others. I'm not particularly enamored with any of the funds in my plan and often thought parking it in a bond or money market option was not risking enough to get a good reward. Obviously through the last few years I'm rethinking that.
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RobBennett
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Thanks for adding those helpful numbers, Jacob.
"It does require severe amounts of backbones to stay with this strategy."
It certainly is true that it would require severe amounts of backbone to do this TODAY. But is there any reason why that needs to be the case in the future? What if 80 percent of the personal finance blogs told their readers how important it is to look at valuations? What if we provided people calculators that showed them how many years they delay their retirements by not considering the effect of valuations?
Just because something was true yesterday doesn't mean that it must be true tomorrow. We know more about how investing works today than we did before. We have more tools available to us. We made more ways to spread the word. We have a greater percentage of middle-class people investing in stocks. We can make things better for investors than they have ever been before. It's up to us, the humans. No one controls us! No one gets to tell us what we may or may not do! Is that not the Retire Early spirit?
"You may be out of stocks for decades"
The beauty of this, though, is that, if lots of people start paying attention to valuations, no one will ever again have to be out of stocks. If we publicized this, stocks could never be overvalued again. Each time prices went up, some people would sell and that would pull prices back down to fair value.
If most investors followed a VII strategy, stocks would provide a return of roughly 6.5 percent real every year. Returns would be far more stable. Which means that risk would be greatly diminished. This is Investor Heaven! This is the Fountain of Youth!
We act as if the Market is this mysterious entity doing strange things to us. We are the market! If we elect to invest rationally, the market will no longer act in crazy ways. It's not like it is against anyone's interest to cooperate. Every single investor will obtain higher returns at less risk. It's all winners and no losers.
It's like having a button to push that would make all air and water pollution disappear. Why not just push it instead of saying "pollution has been a problem for a long time now." I mean no disrespect to anyone. But my take is -- let's just push that groovy button! Getting higher returns at less risk is what it is all about!
People think that the way it has been in the past is the way it always has to be. I don't think our free market economy can even survive if we continue with the way it has always been in the past. It used to be only rich people who lost money in stock crashes. Now every middle-class investor has his retirement money in stocks. We need a greater level of stability or millions of people are going to lose confidence in our entire system.
And it would not be at all hard to achieve this. All we would have to do is open up a few spots on the internet where people could learn the real story. I know from experience that lots and lots of people are looking for less dangerous ways to invest. Why not just give it to them? If we could get a few big blogs to report on this stuff, it would go viral and then we would have hundreds of books being written and hundreds of calculators being developed and all other sorts of good stuff.
All this would do it make us a far richer nation than we are today. It would let the free market operate far more effectively than it has ever worked before. I keep waiting for someone to tell me a potential downside and no one ever does. The only thing I can think of is that there is a feeling of inertia, a feeling that this would represent too much forward progress coming too fast after years of bad times. Such a problem! I believe that we could all use some nice forward progress along about now. I feel that it would lift the feeling of doom and gloom that is making people so anxious. We should be excited about moving forward, not hesitant!
Rob
"It does require severe amounts of backbones to stay with this strategy."
It certainly is true that it would require severe amounts of backbone to do this TODAY. But is there any reason why that needs to be the case in the future? What if 80 percent of the personal finance blogs told their readers how important it is to look at valuations? What if we provided people calculators that showed them how many years they delay their retirements by not considering the effect of valuations?
Just because something was true yesterday doesn't mean that it must be true tomorrow. We know more about how investing works today than we did before. We have more tools available to us. We made more ways to spread the word. We have a greater percentage of middle-class people investing in stocks. We can make things better for investors than they have ever been before. It's up to us, the humans. No one controls us! No one gets to tell us what we may or may not do! Is that not the Retire Early spirit?
"You may be out of stocks for decades"
The beauty of this, though, is that, if lots of people start paying attention to valuations, no one will ever again have to be out of stocks. If we publicized this, stocks could never be overvalued again. Each time prices went up, some people would sell and that would pull prices back down to fair value.
If most investors followed a VII strategy, stocks would provide a return of roughly 6.5 percent real every year. Returns would be far more stable. Which means that risk would be greatly diminished. This is Investor Heaven! This is the Fountain of Youth!
We act as if the Market is this mysterious entity doing strange things to us. We are the market! If we elect to invest rationally, the market will no longer act in crazy ways. It's not like it is against anyone's interest to cooperate. Every single investor will obtain higher returns at less risk. It's all winners and no losers.
It's like having a button to push that would make all air and water pollution disappear. Why not just push it instead of saying "pollution has been a problem for a long time now." I mean no disrespect to anyone. But my take is -- let's just push that groovy button! Getting higher returns at less risk is what it is all about!
People think that the way it has been in the past is the way it always has to be. I don't think our free market economy can even survive if we continue with the way it has always been in the past. It used to be only rich people who lost money in stock crashes. Now every middle-class investor has his retirement money in stocks. We need a greater level of stability or millions of people are going to lose confidence in our entire system.
And it would not be at all hard to achieve this. All we would have to do is open up a few spots on the internet where people could learn the real story. I know from experience that lots and lots of people are looking for less dangerous ways to invest. Why not just give it to them? If we could get a few big blogs to report on this stuff, it would go viral and then we would have hundreds of books being written and hundreds of calculators being developed and all other sorts of good stuff.
All this would do it make us a far richer nation than we are today. It would let the free market operate far more effectively than it has ever worked before. I keep waiting for someone to tell me a potential downside and no one ever does. The only thing I can think of is that there is a feeling of inertia, a feeling that this would represent too much forward progress coming too fast after years of bad times. Such a problem! I believe that we could all use some nice forward progress along about now. I feel that it would lift the feeling of doom and gloom that is making people so anxious. We should be excited about moving forward, not hesitant!
Rob
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RobBennett
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- Joined: Wed Aug 11, 2010 8:09 pm
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"I'm not particularly enamored with any of the funds in my plan and often thought parking it in a bond or money market option was not risking enough to get a good reward. Obviously through the last few years I'm rethinking that."
I think that the thing to do today is just to educate yourself on the realities, Kevin. I would not make any extreme moves. Perhaps you want to over time go with a somewhat lower stock allocation until prices drop. But don't give in to feelings of panic. You want to feel just enough concern to prompt you to learn the realities and not enough to make you do crazy things.
It is my belief that the thing you are wrong on is the idea that taking on more risk necessarily leads to obtaining a higher return. That is part of the Buy-and-Hold Model that I believe is in error. Again, I am not God. So please don't go by what I say. What I am suggesting is that you question this. Perhaps we could have a separate thread here at some point just on the risk/reward connection and work through it that way.
My view is that the connection is not between real risk and reward but between PERCEIVED risk and return. In 2000 the risk of owning stocks was off the charts. But the perceived risk was just about zero. In contrast, the risk of owning TIPS was miniscule. But the perceived risk of being out of stocks (and in TIPS) was huge. TIPS were paying an amazing return because their perceived risk was so high and stocks were paying an awful return because their perceived risk was so low. You want to see through perceptions and take advantage when widespread perceptions are at odds with the realities.
Again, I am just some guy who posts stuff on the internet. It would be crazy for anybody to do anything on my say-so. It would creep me out if I thought anybody was doing that. My suggestion is that we all begin talking about all of these fundamental questions -- here and at lots of other places. There are people who believe that there is a connection between risk and return. Maybe they are right, maybe they are wrong. Let's talk it over and find out. Then we are all better off.
On the three earlier occasions when we went to insanely high prices, the shock that hit investors on the way down sent valuations not only to fair value but to one-half fair value. That's a price drop of about 60 percent from where we are today. If you cannot take that sort of hit, you should not be heavily invested in stocks today. The other side of the story is that after we take that hit, stocks are going to be providing amazing returns for many years to come. If you can find an asset class that pays you a return of zero for a few years, you may able to put that money to work earning 15 percent real a few years from now. Lose it in the next crash and you cannot do that.
You need to think through all of the most likely scenarios and invest according to the odds. You want to be covered under any of the most likely scenarios. We can never know precisely what is going to happen. But our ability to predict 10-year returns is good and our ability to predict 15-year returns is very good. Our ability to predict five-year returns is very poor. Our ability to predict one-year returns is non-existent.
Rob
I think that the thing to do today is just to educate yourself on the realities, Kevin. I would not make any extreme moves. Perhaps you want to over time go with a somewhat lower stock allocation until prices drop. But don't give in to feelings of panic. You want to feel just enough concern to prompt you to learn the realities and not enough to make you do crazy things.
It is my belief that the thing you are wrong on is the idea that taking on more risk necessarily leads to obtaining a higher return. That is part of the Buy-and-Hold Model that I believe is in error. Again, I am not God. So please don't go by what I say. What I am suggesting is that you question this. Perhaps we could have a separate thread here at some point just on the risk/reward connection and work through it that way.
My view is that the connection is not between real risk and reward but between PERCEIVED risk and return. In 2000 the risk of owning stocks was off the charts. But the perceived risk was just about zero. In contrast, the risk of owning TIPS was miniscule. But the perceived risk of being out of stocks (and in TIPS) was huge. TIPS were paying an amazing return because their perceived risk was so high and stocks were paying an awful return because their perceived risk was so low. You want to see through perceptions and take advantage when widespread perceptions are at odds with the realities.
Again, I am just some guy who posts stuff on the internet. It would be crazy for anybody to do anything on my say-so. It would creep me out if I thought anybody was doing that. My suggestion is that we all begin talking about all of these fundamental questions -- here and at lots of other places. There are people who believe that there is a connection between risk and return. Maybe they are right, maybe they are wrong. Let's talk it over and find out. Then we are all better off.
On the three earlier occasions when we went to insanely high prices, the shock that hit investors on the way down sent valuations not only to fair value but to one-half fair value. That's a price drop of about 60 percent from where we are today. If you cannot take that sort of hit, you should not be heavily invested in stocks today. The other side of the story is that after we take that hit, stocks are going to be providing amazing returns for many years to come. If you can find an asset class that pays you a return of zero for a few years, you may able to put that money to work earning 15 percent real a few years from now. Lose it in the next crash and you cannot do that.
You need to think through all of the most likely scenarios and invest according to the odds. You want to be covered under any of the most likely scenarios. We can never know precisely what is going to happen. But our ability to predict 10-year returns is good and our ability to predict 15-year returns is very good. Our ability to predict five-year returns is very poor. Our ability to predict one-year returns is non-existent.
Rob
TIPs & I-Bonds had great yields in the late '90s. Not so much now. YMOYL recommended 100% 30YR Treasuries, but at the time of publication they were yielding 10+%, now <4% with no inflation hedge.
The vast majority of stocks may still be overvalued, but careful research will lead to investments that yield a decent ROI relative to inflation. I buy dividend stocks to participate as an owner in the FCF of the business.
The vast majority of stocks may still be overvalued, but careful research will lead to investments that yield a decent ROI relative to inflation. I buy dividend stocks to participate as an owner in the FCF of the business.
@Rob Thanks for replying to my comments. I would like to react in the following days but at this time you post faster than I can process the info. 
@Jacob "You can track earnings yields at http://www.multpl.com/"
"As you can see, buying at yields > 10% (and typically selling once yields < 5%) does lead to spectacular gains."
"Over the past century, you would have (rough years)
Bought in 1916.
Sold in 1928.
Bought in 1932.
Sold in 1936.
Bought in 1942.
Sold in 1962.
Bought in 1974.
Sold in 1993."
Jacob, I must be looking at the wrong chart. Can you tell me the title of the chart you're using on http://www.multpl.com/ ?
@Jacob "You can track earnings yields at http://www.multpl.com/"
"As you can see, buying at yields > 10% (and typically selling once yields < 5%) does lead to spectacular gains."
"Over the past century, you would have (rough years)
Bought in 1916.
Sold in 1928.
Bought in 1932.
Sold in 1936.
Bought in 1942.
Sold in 1962.
Bought in 1974.
Sold in 1993."
Jacob, I must be looking at the wrong chart. Can you tell me the title of the chart you're using on http://www.multpl.com/ ?