A Story From My Own Life That Shows the Power of the Self-Deception That Also Causes Stock Booms and Crashes


Valuation-Informed Indexing #271

by Rob Bennett

I don’t believe that Buy-and-Hold can work. Buy-and-Holders don’t consider valuations when setting their stock allocations. That makes no sense. It is essential to consider price when buying something. There is no reason to believe that stocks are the sole exception to that otherwise universal rule.

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I face one big problem in making my case.

The Buy-and-Holders are smart. I’ve spoken to thousands of Buy-and-Holders over the past 13 years and I’ve never yet encountered a dumb one. And the Buy-and-Holders don’t buy what I say. They say that investors can be assumed to act in their self-interest and that that insures that stock prices will never stray too far from where they should be. To argue that stocks were priced at three times fair value at the top of the bubble, as valuation metrics show to have been the case, is crazy. Rational investors could never let prices get so out of hand, according to my Buy-and-Hold friends.

My response is that humans greatly underestimate their capacity for self-deception. I have a story from my own life to present to you that in my view reveals this capacity for self-deception in a powerfully compelling way.

I was recently diagnosed with diabetes. It’s a serious disease. It can cause loss of vision. It can cause gangrene, requiring the diabetic to have his legs cut off.

I knew.

I knew a long time ago.

I experienced my first symptom two years ago. I had dry mouth, especially when I ate something sweet. I looked up the symptom on the internet. I was informed that dry mouth is a common early symptom of diabetes. So I knew.

Treated early (primarily by a change in diet), diabetes can be held in check. So it is important to see a doctor on the first sign of symptoms. I didn’t go to a doctor when I experienced dry mouth. I didn’t want to change my diet. So I didn’t want to acknowledge that I had diabetes. So I lied to myself. I told myself that maybe I didn’t have diabetes.

Did I believe this obvious lie?

Kind of. Sort of.

And on another level of consciousness I saw through the lie. I am one of the humans. That’s how we humans operate. We can know something and not know it at the same time if we are too smart not to know and too determined not to know to accept the realities.

The dry mouth went away in a few weeks. Some months later a second symptom appeared. I felt a tingling in my feet. That’s another classic symptom of diabetes.

I told myself three different lies about the tingling in my feet. First I told myself that I was imagining things. The tingling was slight in the early days. So I was able to get away with that one for a time. Then the tingling got a big stronger. Now I told myself that I needed new running shoes. That one didn’t work anymore once I broke down and got new running shoes. Then I told myself that the tingling wasn’t so bad. That was the most pathetic lie. I wasn’t even making up a story anymore; I was just making an excuse for not doing anything about the problem.

This past Summer a third symptom appeared. I lost a lot of weight. I went from 260 pounds to 220 pounds. Diabetics often lose weight because their cells are not able to absorb sugar and the sugar leaves their body through their urine rather than being stored as fat (please understand that damage is being done to the organs when this is happening — getting diabetes is not a smart approach to taking off those extra pounds!). I never acknowledged that I was losing weight. I knew that I was eating like a pig and so I dismissed the evidence that this was happening. There were several occasions on which friends that I had not seen for some time remarked that I looked “trim” and I rejected their observations out of hand as flattery. I never got on a scale. I didn’t want to see that the number had gone higher than 260 as a result of my poor eating habits. I kept myself in the dark as to what was going on.

Things got crazy. I say that now because there’s no cause for me to lie to myself about it anymore. But I made up stories in earlier days and pretended to believe them. It’s hard to deceive one’s self about the loss of 40 pounds of weight. When I was getting ready for bed and I would take off my belt, my pants would drop to the floor without me removing them. I was wearing pants with a size 40 waist when I should have been wearing pants with a size 36 waist. I was acting in a stupid and crazy manner. No? I don’t think that I am generally a stupid and crazy person. But I cannot deny the stupid and crazy behavior that I evidenced for those two years. This all happened.

What was I thinking?

I even have a particular reason for taking diabetes seriously. I had an uncle who had to have his legs cut off because he failed to change his diet after being diagnosed. I remember thinking as a teenager how horrible this was. It’s bad enough to lose one’s legs. But to lose them because you didn’t take an action that you knew was needed to prevent the loss — that’s doubly horrible. My uncle — one of the self-deluded humans — did that. Knowing what happened to him as a result of his delusions, I walked a good ways down that same path over the past two years. I’m a mess!

We all are.

That’s the point of Shiller’s “revolutionary” (his word) finding of 1981 that valuations affect long-term returns. If Shiller is right (there is now a mountain of evidence showing that he is), the mis-pricing of stocks is a real phenomenon. When stock prices rise to the levels that they rose to in the late 1990s, we are borrowing from our future selves and we have to pay the money back in years to come.

Rob Bennett’s bio is here.

Updated on

Rob Bennett’s A Rich Life blog aims to put the “personal” back into “personal finance” - he focuses on the role played by emotion in saving and investing decisions. Rob developed the Passion Saving approach to money management; Passion Savers save not to finance their old-age retirements but to enjoy more freedom and opportunity in their 20s, 30s, 40s, and 50s - because they pursue saving goals over which they feel a more intense personal concern, they are more motivated to save effectively. He also developed the Valuation-Informed Indexing investing strategy, a strategy that combines the most powerful insights of Vanguard Founder John Bogle and Yale Professsor Robert Shiller in a simple approach offering higher returns at greatly diminished risk. Tom Gardner, co-founder of the Motley Fool web site, said of Rob’s work: “The elegant simplicty of his ideas warms the heart and startles the brain.”
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  1. You are more than just wrong. Any sane person can see you are delusional and living in a fantasy world. What you really need is to get some professional help.

  2. I stand by the statement, Sammy.

    Wade Pfau holds a PhD in Economics from Princeton University. He should know pretty much all there is to know about stock investing. It should not be possible for Rob Bennett, some guy whose only claim to expertise in this field is that he figured out what buttons to push to have his words appear at investing boards and blogs, to teach Wade Pfau anything important in this subject area.

    But I did.

    Wade saw my writings on the internet and he contacted me and told me that he wanted to do research with me showing once and for all whether Valuation-Informed Indexing is the real deal or not. When he learned as a result of those 16 months of research that, yes, it all checks out, he was as excited as he has ever been excited about anything in his lifetime. He told me that he couldn’t sleep at night because of all of the implications of the findings of the research that we did together that he was thinking over. He told me that he had visions of winning a Nobel prize for the role he played in producing that research. That’s very, very, very cool stuff.

    Wade is not the only one. I have seen that same general reaction from HUNDREDS of people. They all see how huge this is and they all want to direct their life energies to spreading the word about what we have learned during the first 34 years of the Shiller Revolution. We have seen big advances in the computer electronics revolution since 1981. But those advances pale in comparison to the advances that we have achieved intellectually in the investing advice realm as a result of the Shiller Revolution.

    Lots of people became millionaires for playing a lead role in the computer electronics revolution. Their names have become household names. Bill Gates. Steve Jobs. Larry Page. And on and on and on and on. People naturally like the idea of becoming millionaires by helping their fellow humans in big ways. So the natural expectation is that every site on the internet would on a daly basis be producing materials helping us all to appreciate the breakthroughs we have achieved in the first 34 years since we learned that the Buy-and-Holders got it wrong and that in fact valuations affect long-term returns and that stock investing risk is thus not static but variable.

    We haven’t seen that. Huh? What’s going on?

    What’s going on is the result of a big difference between the computer electronics field and the investing advice field. There wasn’t much of a computer electronics field to speak of in 1981. So no one felt threatened by the huge advances that were achieved and those advances benefitted everyone living on the planet and made the pioneers who promoted them very rich men and women. In 1981, Buy-and-Hold was already in place. There were thousands of wealthy and powerful people whose careers depending on it remaining in place. So we have seen huge opposition to the idea of moving forward.

    We need to move forward. This is too big. Our economic system wont survive unless we do.

    Given that we are going to move forward, the best thing is to move forward as quickly as possible. We hurt too many people by failing to do so.

    People respond to incentives. The practical reality in today’s world is that there are few positive incentives for incorporating what we have learned from the last 34 years of peer-reviewed research into our investing advice and many negative incentives for doing so. So word has not spread. Millions continue to believe in Buy-and-Hold to this day

    But that is going to change following the next price crash. That’s certainly what I believe in any event. When it happens, all the people who played the role of pioneers will be handsomely rewarded for helping us all to get to the other side of The Big Black Mountain. Why would they not be? Bill Gates was handsomely rewarded. Steve Jobs was handsomely rewarded. Larry Page was handsomely rewarded. That’s how things are done in our society. That’s why we are so rich a people — we reward people who put their necks on the line and thereby bring us all to a better place.

    That’s my sincere belief re all this in any event. I haven’t been able to earn a dime for the past 13 years because of all the static generated by you Goons. But I expect to be earning millions and millions of dimes for the 13 years of work effort on the other side of the next price crash. I am not trying to keep anything to myself. I am thrilled when others join me and make their claim to millions of dollars of financial rewards to be delivered following the next price crash. I am in the unusual situation of wanting more competitors for the niche that I own because more competitors means the word spreads more quickly and that’s a very good thing for all of us.

    I think we have a tiger by the tale here. I think that Shiller’s finding that the Buy-and-Holders got it wrong in a fundamental way is the most important peer-reviewed finding in the history of investing analysis. I think the man started a Revolution.

    That’s my sincere take. I could be wrong. I’ve been wrong before and, if it were happening again, I would probably be the last to know. But that is definitely my sincere take.

    I guess we will just have to exercise a little patience and see how it all plays out before us as time goes on. That works for me. I hope it works for you too, my longtime Goon friend.


  3. Today, we see yet another example that you are living in a fantasy world when we see you make the following comment, Rob:

    “I obviously would have earned far more than $500 million had you Goons not engaged in insanely abusive and criminal behavior and if big-name “experts” like Jack Bogle had not failed to act when informed of your behavior. I have offered to settle for $500 million because it makes sense for every single person involved for us to put the nasty stuff behind us and get about the business of spreading the word about the first true research-based strategy and thereby bringing on the greatest period of economic growth in our nation’s history.”

  4. People can read those links and many more by just a simple google search Rob. Your saga and track record is just horrible. You have a failed retirement plan, your “investments” have performed much worse than the “buy and hold” crowd you speak of since you made the stupid mistake to pull out of the market in 1996 and you have been banned from every major financial board for exhibiting poor behavior.

    Speaking of those links and this track record, they can all be proven with large amounts of supporting information, but none of your silly fantasies and repeated lies have any support whatsoever.

    Your made up goon conspiracy is not your problem, Rob. It is those darn facts that get in your way.

  5. If people read the material at those links, it will help them come to a better understanding of what has been going on here for 13 years. They don’t need to read the material at the links. They can pick up the same thing just by reading the words in this thread. But if there are people who still have doubts after reading the words of the thread, it can’t hurt for them to take the next step and read the material at the links.

    Everyone gets what is going on here. Shiller showed 34 years ago that valuations affect long-term returns. That means that stock investing risk is not fixed but variable; risk is greater when prices are higher. So investors need to change their stock allocations in response to big price swings. We all consider price when buying everything we buy other than stocks. So we all know why considering price is so important. So on the intellectual side this stuff is very easy.

    The problem is on the emotional side. Most of us did NOT lower our stock allocations when prices got insanely out of hand in the late 1990s. We not only did damage to our own retirement hopes when we did that. We caused the economic crisis. There is ALWAYS an economic crisis in the years following a time when Buy-and-Hold strategies become popular. Prices have to come back down for the market to be able to continue to function and that means that trillions in buying power are lost and hundreds of thousands of companies that could thrive in the days of greater buying power go belly up. Never in U.S. history has there been a single exception to that rule.

    We all know on one level of consciousness what works in the stock market because it’s the same thing that works in every other market — price discipline. But we all also have a Get Rich Quick urge within us that persuades us to rationalize (that is, tell lies to ourselves) that this might be the first time in history when Buy-and-Hold might actually pay off. So a lot of us feel pain when someone says publicly what the last 34 years of peer-reviewed research shows.

    You say that I insist on my right to post honestly about the implications of Shiller’s “revolutionary” (his word) findings “for my own benefit.” What benefit is that? I was the most popular poster at the entire Motley Fool site in the days before I put forward my famous post of the morning of May 13, 2002. I have a lot of blogger friends who were less popular than me at that time who sold their blogs for over a million dollars in the days since. I haven’t earned a dime in those 13 years. And I did this for “my own benefit”? Huh?

    I’m not a pure altruist. I do expect to make millions on the other side of all this. Please don’t quote me as saying that I am a pure altruist because that is not true. But I did not do this solely “for my own benefit.”

    I did this because I don’t feel comfortable posting dishonestly re my views on stock investing. I have never posted dishonestly on any other subject and I am not able to come up with any good reason why stock investing should be an exception. I say what I believe. I know that there is 34 years of peer-reviewed research showing that the safe withdrawal rates varies with changes in valuations and so I say that. When people ask me how much it changes, I look at what the data says and I tell them. The data says that the SWR was 1.6 percent at the top of the bubble and 9.0 percent back in 1982. It is not always 4 percent like the Buy-and-Holders say.

    Our system of government permits people to express different viewpoints on all subjects. Had we followed the usual rules, there would have been a national debate about Shiller’s findings that would have began in 1981, when they were published. We would have worked our way to an ever better and ever fuller understanding of the truth of things as a result of that national debate. Had that happened, we would not all be suffering from the effects of an economic crisis today.

    But that debate has not yet taken place. There is a lot of money to be made in this field. Money talks. People who had built careers around Buy-and-Hold back in the days before the peer-reviewed research discrediting it was published used their money and power advantage to keep that debate from taking place. Now — 34 years later — they feel that they will look horrible if word gets out about how they went about the business of blocking that debate.

    I didn’t do any of that. I wasn’t even around in the days before May 13, 2002.

    I know that it can’t be right for me to post dishonestly. I know that there are thousands of people, both Buy-and-Holders and non-Buy-and-Holders who long to be able to post honestly re investing issues, just as I do. I know this because THEY HAVE TOLD ME SO (some in public, some in private). What we need to overcome the 34-year cover-up is to EXPOSE IT. That’s how it is done. That is the only way it can be done.

    So I just continue to insist on my right (and the right of all others) to post honestly re these issues. That’s the answer. Every time I do that, I am helping us all. If I were ever to agree to do otherwise, I would be hurting us all. We are all in the same boat. Deep down, we all want the same thing. Our laws reflect our deep beliefs. Those laws need to be respected.

    I love the Buy-and-Holders. They were the pioneers. I learned important things from them and will always be grateful. But they need to come clean re this valuations thing. The peer-reviewed research shows that valuations affect long-term returns. That reality needs to be reflected in what the Buy-and-Holders say re every investing topic. It is not reflected in what they say today. They are going to need to learn how to say that words “I” and “Was” and Wrong” and then move forward from that point.

    That’s my sincere take re all this in any event, Sammy. I look forward to the day when we are friends again.

    My best and warmest wishes to you.


  6. No you don’t, Rob. You call me and other people goons. You lie about people like Wade, John, Rick, etc. for your own benefit an weave stories about how they are all going to prison because they won’t follow your little fantasies.

    You really need to get help.

  7. Wrong again, Rob. You have been wrong on the SWR issue, as Wade has pointed out. You were banned due to bad behavior. There were no threats to his employer either. That is yet another thing you have made up and when you have been challenged on this and your other fantasies, you cannot come up with anything to prove your points. Instead, if anyone googles Rob Bennett board bannings, they will get all the information they need to see why you were banned.

    You silly tobacco reference is yet another failed analogy.

    If you are looking for failed strategies, no one needs to look any further than your own results in which you personally have had a failed retirement program and have grossly underperformed the market with your “investment strategy”.

  8. The “poor behavior” that I engaged in was to point out the errors in the Old School safe-withdrawal rate studies. That’s it. Those studies do not contain an adjustment for the valuation level that applies on the day the retirement begins. There’s 34 years of peer-reviewed research showing that such an adjustment is required to get the numbers even roughly right. Buy-and-Hollders consider it “poor behavior” to point this out because they have been covering up this reality for 34 years now and they have destroyed millions of lives by doing so.

    You are right that Wade said that I do not understand the safe-withdrawal-rate issue. But he said that only once after saying the opposite hundreds of times. I didn’t go to Wade and ask that he work with me. Wade came to me and asked that I work with him. He said that he had been thinking about my work on SWRs for a long time and wanted to co-author research with me settling the matter once and for all. When we were doing the research, he said that he was so excited that he could not sleep at night. He said that the implications of the research were so far-reaching that he believed that he might win a Nobel prize for it.

    It was only when you Goons threatened to send defamatory e-mails to his employer in an effort to get him fired from his job that he changed his tune. I don’t think he should have changed his tune. I think he should have continued doing honest work. I think he would have been awarded the Nobel prize if he had.

    Last night I watched the movie “The Insider.” It is about how the tobacco industry set about destroying a scientist who told the truth about the lies that seven tobacco company CEOS told under oath when they testified that cigarettes are not addictive. That man lost his job, he lost his wife, he was threatened with civil damages, he was threatened with imprisonment. CBS was threatened with a multi-billion-dollar lawsuit when they made plans to air his story on “60 Minutes.” The tobacco industry had a lot of money riding on keeping people in the dark about what the research showed. And they used their financial resources to keep people in the dark.

    In the end, it was the tobacco industry that was defeated. Word had to get out sooner or later. There were too many people who had come to know that cigarettes are addictive for them to keep the truth bottled up forever. We live in a free society. These cover-ups just cannot last indefinitely. Trying to keep them going is a doomed enterprise.

    I think that the truth about the last 34 years of peer-reviewed research is going to get out following the next price crash. If valuations truly affect long-term returns, that stands everything that we once thought we knew about how stock investing works on its head. We’re going to see 34 years of progress in our effort to learn how stock investing works come about in a small amount of time. It’s going to be very exciting and it is going to show once again why our system of government is so great in its ability to overcome the mountains of money that vested interests sometimes put into keeping important truths from the rest of us.

    That’s my sincere take re these terribly important matters, in any event. I guess we’ll see how things go following the next crash.

    I naturally wish you all the best that this life had to offer a person, Sammy.


  9. First of all, you were banned from those boards because of your poor behavior. I can provide links if needed, but a simple google search will show this to be true.

    Secondly, your post in 2002 is famous only in your mind. In fact, you should be embarrassed to bring it up. As Wade Pfau stated on his blog, you were given the answer to your question within 84 minutes. Wade has also stated that you do not understand the SWR issue.

    We all know that results matter. We can see it documented on the Internet that your retirement plan failed. We can see your own investment strategy has had a return much less than the strategy you call buy and hold.

    As we see in this post and in others, your expectation is to save yourself from these mistakes from a fantasy in which you will reap millions from your so called “work”. This is no different than some of the people that play the lottery as a way of funding their retirement. The funny thing is that the lottery players have a better chance of winning a jackpot than you do of collecting your expected payday of $500 million……and we all know the long odds of the lottery.

  10. I am banned at 20 different sites. That’s not normal. There’s something extraordinary going on here. I didn’t know what I was getting into when I put up my famous post on the morning of May 13, 2002. Now I know. We’ve got a tiger by the tail. Shiller’s “revolutionary” (his word) finding of 1981 changed our understanding of how stock investing works in a fundamental and far-reaching way. This stuff is very important and very exciting and 100 percent positive.

    Valuation-Informed Indexing is not popular today. Only about 20 percent of the population follows it ( I know this from my participation at hundreds of investing blogs and discussion boards, where I have been able to test reactions to the various ideas that follow from an exploration of the implications of Shiller’s research). Why isn’t it 100 percent given that VII reduces stock investing risk by 70 percent?

    It’s not yet 100 percent because most people have not yet even heard about these ideas. I had one guy at a blog tell me that he had never heard Buy-and-Hold described as a “Get Rich Quick scheme” until I posted at that blog. Huh? Shiller showed that valuations affect long-term returns. Buy-and-Hold advocates tell people that there is no need for them to change their stock allocations in response to big shifts in valuations. And that’s not a Get Rich Quick scheme? Come again? If that’s not a Get Rich Quick scheme, what would a Get Rich Quick scheme look like?

    The Buy-and-Holders obviously know that there is no way to square their strategy with the last 34 years of peer-reviewed research. The intellectual stuff here is not at all hard. But the emotional stuff is VERY hard. The Buy-and-Holders have their entire lives invested in this “idea.” They cannot BEAR to accept that they made a mistake. And so they are suffering from cognitive dissonance. And we are all suffering today as a result of the economic crisis that this massive case of cognitive dissonance brought about?

    Now —

    This can’t last, right? People don’t like the economic crisis. People want to know what the research says about how stock investing works. We’ve seen that at every board and blog to which I posted. So this is all going to come out following the next price crash.

    Do you not think that the pioneers — the people who take the lead in spreading the word about Valuation-Informed Indexing are going to make tons of money as a result of doing so? I sure do. I’m not saying that to brag. I am trying to let other people realize what an OPPORTUNITY we all have before us today to do well for ourselves while doing huge good for others at the same time. That’s a pretty darn cool thing to be able to do, no?

    Lots of people look at the abusiveness of you Goons and conclude that it’s better to keep quiet about the last 34 years of peer-reviewed research. I see it just the other way. I want to shout from the rooftops about ti stuff. Why the heck not? That way I benefit personally while helping out millions of middle-class investors. Learning experiences are a win/win/win and this is the biggest learning experience that we have ever enjoyed in the personal finance field. There is no downside to getting the word out about what we have learned about stock investing over the last 34 years.

    I expect to earn millions as a result of the 13 years of work effort that I have put into the project of developing and promoting the Shiller model, Sammy. I sure won’t apologize for doing so. I’ve earned that money and a lot more. Learning what it means to say “valuations affect long-term returns” is a liberating experience for all of us. Our system provides that the people who lead such “revolutions” profit handsomely from doing so. Good for our system! I love that about our system!

    That’s where I’m coming from, in any event.

    I naturally wish you the best of luck in all your future life endeavors.


  11. And here are more of your comments on how you will get your quick fix (taken from your website):

    “Gee, I hope I don’t go broke with all the offers to pay millions for this site that I will be receiving on a daily basis. And I hope I don’t get too tired handling the thousands of invitations to speak at conferences that will be coming my way. How will I be able to carry all the big bags of money? There is only so much that one man can endure!”

  12. I see a common theme here Rob. Given your weight, it should have been obvious that you would eventually experience health issues. You clearly should have taken action before your health started to suffer. Some of the health impacts cannot be reversed, even with weight loss and you also didn’t need the scale to tell you that you were fat.

    As I said, I see a common theme. When you retired, you clearly did not have enough in savings, yet your ignored what was obvious and we see that your plan failed. You also decided to try and time the market by taking all your money out of the stock market and then watching everyone else significantly out perform you. People tried to help, but you wouldn’t listen, figuring that you were the real expert. You were told by Wade and others how you were wrong on the SWR issue, yet you still do not understand it and you have been made to look like a fool.

    The problem with all these issues (health and financial), is that you cannot expect a quick fix to solve your problems. Even with weight loss, neurological damage to extremities is often unreversible. Same goes on finances. There isn’t a magic bullet to fix it this late in the game. Expecting some crazy 65% crash that leads to a $500 million windfall is just a childhood fantasy.

    The power to change is in your own hands. Expecting everyone and everything to bend to your own desires is unrealistic at best.

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