The Word “Bubble” Applies Both to Thought Bubbles and to Valuation Bubbles

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The Word “Bubble” Applies Both to Thought Bubbles and to Valuation Bubbles
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Valuation-Informed Indexing #341

by Rob Bennett

The election results of November 2016 came as a shock to most of us. Much of the commentary focused on the idea that members of today’s “elite” are living in a bubble. Great Britain would not elect to leave the European Union because that sort of thing is just not done. Donald Trump could not win the Republican nomination because he said things that no one had dared say before. He could not win the Presidency because he had less money to spend and he had not built a good ground game and he had not won many Senate endorsements.

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The “bubble” being referred to here is not the kind of bubble that we talk about when stock prices reach high levels. The idea here is that the elites live in a thought bubble. They only speak to other elites and all elites say the same things. When non-elites don’t behave as expected, the elites are left dumbfounded. People voted for Donald Trump? Who are these people? If they exist, why have I never met one of them?

It’s a different kind of bubble that applies in the investing realm. There the idea is not that there is a transparent film blocking out other modes of thought. The stock bubble is a balloon that gets inflated to a point where it stands ready to pop.

 

But the two uses of the word “bubble” are in fact referring to similar phenomena. Stock bubbles are caused by thought bubbles. We couldn’t have stock bubbles if we did not have thought bubbles. A good way to define “stock bubble’” is as “a physical manifestation of the thought bubble made possible in the investing realm because stock prices reflect investor irrationality reduced to numbers.”

A P/E10 value of 15 (the fair-value P/E10 level) is telling us either that there are no thought bubbles present in the stock market at the time, or, if there are, the thought bubbles that are pulling prices irrationally down are matched by thought bubbles exerting on prices an equal irrational force in the opposite direction.

A P/E10 value of 8 is telling us that there is a big thought bubble pulling prices down irrationally. There is no rational explanation for why stocks should ever sell at one-half of their true value.

A P/E10 value of 30 is telling us that there is a big thought bubble pulling prices up irrationally.

Eugene Fama, who believes that the stock market is efficient (that is, properly priced), often challenges those who believe in valuation-informed strategies to define “bubble.” My view is that Fama misunderstands the case for the belief that investors must adjust their stock allocations in response to big shifts in stock valuations. He is asking that valuation-informed investors identify the P/E10 level at which prices are so out of hand that a crash in imminent. Using that test, valuation-informed strategies fail because there is no one price level that always signals an imminent price crash.

Fama’s mistake (in my view), is in trying to apply strict logic to an irrational phenomenon. Investors who at one time in history were spooked by a P/E10 of 25 might at another time in history tolerate a P/E10 of 40. And there might not be any particularly persuasive explanation for the variance in behavior. Mispricing is irrational by definition. It is not reasonable to demand of a man who insists that he is the king of England to show papers proving the case. Craziness doesn’t respect evidence. Investors who can rationalize a P/E10 level of 26 can rationalize a P/E10 level of 39. Irrational exuberance is not bound by the laws of logic.

Fama is being irrational in being comforted by his observation that mispricing should not exist. The fact is that it does exist. The decision by many smart and good people to ignore that scary reality makes the reality even more scary. Nothing fuels overvaluation like a belief that it doesn’t matter.

It is the transparent film that keeps out unwelcome ideas that causes the inflated prices. I often engage in back-and-forth discussions with Buy-and-Holders that end with a declaration on their part that valuations cannot be as important as I say because the vast majority of investors say that they are not. It’s the very fact that investors don’t believe that valuations matter that permits them to rise so high! If most investors believed that valuations matter, prices could never get too out of hand.

And the Buy-and-Holders’ solution to the problem of people like me pointing to the 36 years of peer-reviewed research showing that valuations matter a great deal indeed is to ban us from discussions with them. The only way to get prices down is to persuade more investors that prices matter. But once prices are so high that they matter a great deal the majority of investors cannot bear to listen to the case for why prices matter. So they ban those discussions, pushing prices higher yet.

I’ve read several articles reporting that Hillary Clinton’s husband, a man who is widely recognized as knowing more than a thing or two about politics, advised her campaign to spend some time campaigning in Wisconsin. He was patted on the head and told that he was an old man with old ideas, the new guys had this one in the bag. They believed it was so. Inside the bubble, victory was certain. Why hear out a fellow making points that came from outside the bubble? So it is with stocks. Those who have new ideas about how stock investing works are perceived as threatening to those who have built their careers around promotion of the old ideas. Should I stop sharing my thoughts about how stock investing works because they are not popular? That argument does not compute for me. It is the unpopularity of my ideas that makes them valuable, in my assessment. They come from outside the bubble.

My critics tell people asking about me that I have been banned at over 20 sites. They do it to shame me. It is my view that the bannings reflect poorly on Buy-and-Hold. If Buy-and-Holders were confident in their strategy, challenges to it would not provoke bannings. When the Buy-and-Holders themselves have come to believe that the strategy can survive only for so long as it is protected in a bubble, why should any of us who have not yet drunk the Kool-Aid be impressed?

Rob’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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33 COMMENTS

  1. Here is what JD Roth said to Rob about his behavior:

    “Right now, Rob, you are your own worst enemy in this matter. *YOU* are what is causing people not to listen. People in the MBN thread tried to tell you this, but you ignored them.”

  2. “Wade wrote me several e-mails telling me that he was afraid that you Goons could get him fired from his job.”

    And here we are again. Put up or shut up.

    As always, you will do neither.

  3. Rob says:

    “Wade wrote me several e-mails telling me that he was afraid that you Goons could get him fired from his job. ”

    And Rob also says:

    “It was on the night that Greaney put forward his first death threats that I lost confidence in Buy-and-Hold. People promoting strategies that they believe can be defended in reasoned debate don’t resort to death threats.”

    Wade says:

    “The reality is that you are causing me 1000x more career damage than the Goons ever could have by filling Google with so much nonsense about me, and sharing embarrassing private details such as my overly ambitious journal submission strategies, etc. Those in particular are highly private. People don’t publicly share where they submit articles to unless those articles are accepted. You’ve violated my trust in so many countless ways and yet you still proclaim to be my friend.”

    and Wade also says:

    “”Rob lives in an imaginary world of death threats and threatened
    academic researchers and so on, as you would discover if you waste
    time reading what he writes. Just thought I’d let you know, straight
    from the horse’s mouth.”

    I think Wade has significantly more credibility than you do, Rob, given your track record of continues lies.

  4. Wade wrote me several e-mails telling me that he was afraid that you Goons could get him fired from his job. He said that it didn’t matter that what you would be saying would be untrue, his employer would wonder why a number of people were saying these things and he would be in trouble. When Lindauer claimed at the Bogleheads Forum that Wade was engaging in unethical research practices, Wade’s first response was to fire back at him. It was when Bogle and others failed to do anything to rein Lindauer in, that he became afraid.

    He wasn’t wrong to be afraid and I have never said he was wrong to be afraid. What I say is that there is only one way to bring the nasty stuff to an end — all of the many good people who want to do honest work in this field need to stick up for each other and speak out in opposition to your abusive and criminal tactics. You Goons are a paper tiger. When those of us who want to do honest work stick together, you are left powerless. So long as we believe that there is nothing we can do to stop you, you possess veto power over what we say. Once we recognize that the law is on our side, you are left with no options but to begin working within the confines of the law.

    The entire Wade Pfau story is told at my site and the entire Wade Pfau story will in the not-too-distant future be told on the front page of the New York Times. Our laws against financial fraud are good laws and they are going to be enforced. Thinking that this stuff will go on forever is like thinking that the Watergate crimes would never be exposed. Power and money can keep a cover-up going for a time. But death threats are a sign of desperation.

    It was on the night that Greaney put forward his first death threats that I lost confidence in Buy-and-Hold. People promoting strategies that they believe can be defended in reasoned debate don’t resort to death threats. Not once. Not ever. Death threats are a desperation tactics. Buy-and-Hold is on its way down and Valuation-Informed Indexing is on its way up. Shiller was right that valuations affect long-term returns.

    Rob

  5. You think the more words you type, the stronger your argument. Wrong.

    If Wade cut you off because of goons, he would have explained that to you in a private email (and don’t lie again claiming he did.) Even better, he could have simply stopped responding to your emails, with no explanation.

    But no, he went out of his way to explain how your behavior was outrageous and disrepectful. If he was lying about that, he’s a really mean person. Or, he was telling you the truth, hoping it would sink in. Everyone but you knows which is correct.

  6. I could reply yet again to all of the lies lu just posted yet again, Rob, but I think Wade summed it up perfectly and much better than I could when he said:

    “Rob lives in an imaginary world of death threats and threatened
    academic researchers and so on, as you would discover if you waste
    time reading what he writes. Just thought I’d let you know, straight
    from the horse’s mouth.”

    Rob- you have a failed retirement plan, a failed investing plan, you are banned at most boards and it seems people like Wade no longer will speak to you because of your behavior. A person of reason would eventually figure out that they are wrong. If you aren’t capable of figuring this out, them perhaps your only solution is to seek professional help.

  7. Wade says that I torpedoed my relationship with him because I reported accurately that you Goons threatened to get him fired from his job if he persisted in doing honest work and he agreed to flip because he feels that the most important thing is that he be able to feed his family. I love Wade Pfau. He knows that. He is embarrassed about what he was driven to do and he does not want people knowing the facts. So I am his enemy for the time being. That obviously will no longer be the case following the next price crash, when Wade is going to be pointing to all the great work he did before the threats and noting that that work would have prevented the next price crash from happening had only the peer-reviewed research that Wade and I co-authored been written up on the front page of the New York Times when it was published.

    We are all in the same boat, Dan. Greaney didn’t want to destroy the lives of the people who posted at the Retire Early board years ago. Those people were my friends and those people were his friends. Greaney used the same methodology that was used in the Trinity study. He felt that since the methodology was peer-reviewed, that should be good enough. It’s not. The methodology is analytically invalid if Shiller’s research is valid. But Greaney felt that he should not be challenged for using a methodology that was used by lots of good and smart people with more credentials than he possessed. That’s how this all got started.

    Bogle has a similar story. He felt that he was helping people when he developed the Buy-and-Hold strategy. He based it on the peer-reviewed research of the time; Shiller had not yet published his “revolutionary” (his word) findings of 1981. Bogle should have acknowledged his mistake when he first learned of it. But my strong hunch is that he rationalized not doing so on grounds that valuations were so low that they would never again exceed fair-value levels and so what was the harm of avoiding the embarrassment of acknowledging a mistake? Then, when valuations rose so high that it became clear that Buy-and-Hold was going to cause an economic crisis, the embarrassment associated with acknowledging the mistake was 20 times greater. Being one of those darned humans, he felt a temptation to kick the can down the road again. And again. And again. And again.

    I don’t want people like Bogle (whom I love) to be placed in such circumstances. I don’t want people like Pfau (whom I love) to be placed in such circumstances. I don’t want Mel Lindauer or John Greaney to be placed in the circumstances in which they have been placed. What do you propose that I do about it? You pressure me to join the cover-up. But it is the cover-up that caused all these problems and that placed all these people whom I love in these terribly difficult circumstances.

    Had someone did what I did in 2002 back in 1981, Bogle would have come clean in 1981 and we all would be in a much better place today. So, no, I don’t think that I did anything wrong in posting honestly about safe withdrawal rates in 2002. I think that was my finest moment. I am very proud that I eventually worked up the courage to put forward that famous post (it took me three years!). All of the great stuff that has followed came about as the result of my working up the courage to begin walking down this powerfully positive path.

    The only problem we have is that everyone is not today walking down this powerfully positive path. I don’t mean to say that we need everyone endorsing Valuation-Informed Indexing. I mean that every single person alive on the planet today should be speaking out in opposition to the death threats and the demands for unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs. It is only when we are all united on that point (which should cause no controversy whatsoever) that we will be able to launch a national debate on whether it is Fama or Shiller who is right and thereby learn together how this stock investing thing really works.

    No, I am not wrong on the core point, Dan. It is possible that I am wrong about how stock investing works. I don’t think so. But I am obviously biased and so no one should go just by what I say re that one. But if I am wrong re the core point, that everyone posting to investing boards and blogs should feel 100 percent free to state his honest beliefs without apology or hesitation, then our entire political system is rooted in a false premise. I love my country. That runs deep. No, I very, very, very much do not believe that I am wrong re that one. I cannot imagine ever giving one tiny inch re that one.

    I think of you as a friend, Dan. Do you think of me as a friend? That’s the problem with Buy-and-Hold. It is so emotional strategy that it causes people who stake their lives on it to lose sight of the things that really matter. I am going to continue to post honestly and I am going to continue to encourage all others — Buy-and-Holders and Valuation-Informed Indexers alike — to do so. I think that’s the answer.

    I am 100 percent sure.

    My best and warmest wishes to you and yours. my good friend.

    Rob

  8. “The things that Wade Pfau wrote in 2011 are things that people will be talking about for many decades to come.”

    No, YOU will be talking about them for decades.

    2012 Wade said you torpedoed your relationship with him. Not goons. You. Of course, you absolutely reject that. You are never wrong, and nothing is ever your fault. We just need for the next crash. Then everyone will see.

  9. Rob say:

    “I absolutely love the pre-threatened version of Wade Pfau. He is a smart, hard-working, creative researcher. ”

    And

    “You didn’t prove Wade wrong when you threatened him and thereby persuaded him to pretend for a time that he agrees with you. ”

    Wade says:

    “Rob lives in an imaginary world of death threats and threatened
    academic researchers and so on, as you would discover if you waste
    time reading what he writes. Just thought I’d let you know, straight
    from the horse’s mouth.”

    Rob is the one who has been banned from most financial boards and has little to no support on his board, while Wade continues to lead a successful career. Who are we to believe? It seems to be an easy conclusion that Rob is the one lying and has the behavior problem.

  10. And Wade answered that by saying:

    “And the further reality is that if I *did* lack personal integrity, I could have made this all stop just by saying the meaningless sentence you want so desperately to hear: “I think the errors in the traditional safe withdrawal rate studies must be corrected by using Rob’s analytically valid method.”

    But I don’t believe that. I do not believe you have offered a valid correction to the safe withdrawal rate question. And I believe that retirement income strategies go much further than the question of a safe withdrawal rate. And so that is why I’ve had to endure your ongoing harassment for months on end now.

    Usually I can figure out the Rob-logic behind what you are thinking, but I really don’t know how you think you come out of this whole episode looking like the good guy. I guess it is because you think you are saving my soul and putting me back on the path of righteousness, or something, huh? If only you had the power to do a little bit of self reflection…”

  11. So, you have nothing to support a defense of your behavior. Once again, reminding everyone as to Wade’s real words:

    “Rob lives in an imaginary world of death threats and threatened
    academic researchers and so on, as you would discover if you waste
    time reading what he writes. Just thought I’d let you know, straight
    from the horse’s mouth.”

  12. The way that I would say it is that Buy-and-Hold stopped in 1981, when peer-reviewed research was published showing that there is precisely zero chance that it can ever produce good long-term results for even a single long-term investor. Since then, we have been as a society working through a process that will take us from Buy-and-Hold to Valuation-Informed Indexing. Once one large site is opened to honest posting, we will all realize the benefits of 36 years of peer-reviewed research in a single day. That will be amazing.

    I absolutely love the pre-threatened version of Wade Pfau. He is a smart, hard-working, creative researcher. We need as many of them as we can find. I view the pre-threatened Wade Pfau as a national resource. He put lots of time into his education. We all get the benefits of that education. BUT ONLY IF HE IS PERMITTED TO DO HONEST WORK. Once he is intimidated into doing something less than fully honest work, we all lose out on the gains that his insights would have provided us.

    We are all suffering because of the 36-year cover-up. But we have not yet seen the last chapter of the story. People respond to pain. Pain shakes people up. People who today are complacent about the cover-up will be working hard to bring it to an end in the days following the next crash. I am 100 percent certain that my good friend Jack Bogle will be one of those helping us all out in those days. When Bogle becomes a Valuation-Informed Indexer, everyone will become a Valuation-Informed Indexer. Why would anyone want to hold back at that point?

    Buy-and-Hold died intellectually a long time ago, Dan. Why would I want to spend my time writing about a dead idea when I could spent it writing about the first true research-based strategy, the strategy that is everything that Bogle had intended Buy-and-Hold to be when he was starting out.? Everyone makes mistakes. The trick is to learn from them. I don’t view the incredible learning experience that began in 1981 as something bad. I view is as good stuff piled on top of good stuff piled on top of good stuff. I am thrilled and honored to be playing a key role getting the word out to millions of middle-class investors.

    Buy-and-Hold is far more popular today. But Buy-and-Hold died intellectually 36 years ago. I am looking forward, not backward. I offer precisely zero apologies for doing so. The things that Bogle says today are things that were proven wrong in 1981. The things that Wade Pfau wrote in 2011 are things that people will be talking about for many decades to come. You are the one living in the past, Dan. You didn’t prove Wade wrong when you threatened him and thereby persuaded him to pretend for a time that he agrees with you. Wade is going to go right back toi posting what he believes in the days following the next price crash. I have made a decision to post honestly all along because I learn more that way. I enjoy learning and it makes my work product more valuable for me always to be in learning mode.

    I hope that helps a small bit.

    Rob

  13. So for you, time stopped in 2011 when Wade said those things. For the rest of us, Wade not only left the building, he burned it down and peed on the ashes. But instead of moving, you squat on the ruins and call it a palace.

  14. 50 Milion Wade Pfau Fans Can’t Be Wrong!

    1) “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”

    2) “Valuations and long-term investors is a somewhat controversial topic.” Wade posted these words to his blog in October 2011 as his explanation of why he was abandoning his plan of doing further research on the superiority of Valuation-Informed Indexing strategies over Buy-and-Hold strategies. He had told me in earlier days that “You ain’t see nothing yet!” when I praised his breakthrough research in this area. After his flip to the dark side, Wade removed the page containing this blog entry from his site.

    3) “We have both read and met to discuss your paper. Unfortunately, we did not find the paper’s incremental contribution to the academic finance literature, assuming the analysis proved to be correct, rose to the level that we are seeking for papers in the JFR. Thus sending the paper to a reviewer would be inefficient.” These words are from an academic journal’s “desk reject” of Wade’s breakthrough research.

    4) ) ““ I was discouraged when I first received the “desk reject” by the editors of the same journal that published the Fisher and Statman paper. I realized that I didn’t have a chance with one of the top journals.”

    5) “I think I should stay publicly quiet for a while, as I really don’t want anyone sending messages about any topics to officials at my university.”

    6) I don’t want them [the Goons] working behind the scenes to derail me.”

    7) “I did warn the editor of the Journal of Financial Planning that they may receive some ‘hate mail‘ after I mentioned your name in the safe savings rate paper.”

    Rob

  15. Nice try at spinning your view on Wade. Focusing on his actual words he says:

    “And the further reality is that if I *did* lack personal integrity, I could have made this all stop just by saying the meaningless sentence you want so desperately to hear: “I think the errors in the traditional safe withdrawal rate studies must be corrected by using Rob’s analytically valid method.”

    But I don’t believe that. I do not believe you have offered a valid correction to the safe withdrawal rate question. And I believe that retirement income strategies go much further than the question of a safe withdrawal rate. And so that is why I’ve had to endure your ongoing harassment for months on end now..”

    Did you read that Rob? harassment……..that means BAD BEHAVIOR. There is nothing else that accounts for why you are banned. We see this in every single case.

  16. Wade Pfau has definitely NOT let the building:

    7) “This is similar to your drunk driving analogy, which I agree with.” The discredited but uncorrected retirement studies find that in most circumstances a 4 percent withdrawal rate provides a huge cushion for the retiree using it. However, in each of the three cases in history when stocks reached insanely high price levels, retirements using a 4 percent withdrawal came within a whisker of failing. To say that this shows that a 4 percent withdrawal is “100 percent safe” (these words are used in the Greaney study) for a retirement beginning at a time of insanely high price levels is like saying that driving drunk is “100 percent safe” because 97 sober drivers drove their cars 20 miles without incident while 3 drunk drivers were paralyzed for life in car accidents but did not die. The fact that 4 percent only worked by a whisker in the cases in which valuations were high at the beginning of the retirement shows that a 4 percent withdrawal is high-risk at times of high valuations, not that it is “100 percent safe.”

    8) ” Actually, this issue shouldn’t really even be all that controversial. It’s just common sense that the probabilities from the Trinity study shouldn’t be interpreted as forward-looking probabilities for new retirees.”

    9) Naturally, I am finding that Valuation-Informed Indexing can allow you to reach a wealth target with a lower savings rate, use a higher withdrawal rate, and also have a lower “safe” savings rate, than a fixed allocation.

    Rob

  17. Wade Pfau’s Greatest Hits, Volume V:

    1) “The traditional approach to retirement planning (as described on pages 10 and 11 of The Bogleheads’ Guide to Retirement Planning, for example) is counterproductive and possibly damaging.”

    2) “Retirees now frequently base their retirement decisions on the portfolio success rates found in research such as the Trinity study…. This is not the information that current and prospective retirees need for making their withdrawal rate decisions.”

    3) “This article provides favorable evidence based on the historical record for long-term conservative investors to obtain improved retirement planning outcomes (lower savings rates, higher withdrawal rates) using valuation-based asset allocation strategies.”

    4) Wade sent me a link to an article in Business Week that was published more than eight years after my post pointing out the errors in the Old School retirement studies and which he characterized as “quite sympathetic to the point you were trying to make all along”.

    5) “Though I was only trying to do an Old School safe-withdrawal-rate study, all that I ended up doing was showing in a different way what you had been saying all along: the safe withdrawal rate changes with valuations.”

    6) “Valuations are the driving factor. ”

    Rob

  18. Of course we can forget the email Wade sent to Rob that made him lose his mind:

    Hi Rob,

    I forgot that I was still saying things like this even 2 weeks after the initial incident.

    This was more than a year ago now, but I am thinking that I was just trying to explain politely to you that I’d rather have you quit writing about me, or at least stop using my name. I suppose that I figured the only way you might understand why is if I explained it in terms of your favorite conspiracy theories.

    I will make one more attempt at a reality check for you. You go on and on about how I allegedly lack personal integrity because I allowed the Goons to threaten me into silence.

    The reality is that though I may have for a brief moment got a bit too caught up in YOUR drama, I do not have any fears about the Goons.

    The reality is that you are causing me 1000x more career damage than the Goons ever could have by filling Google with so much nonsense about me, and sharing embarrassing private details such as my overly ambitious journal submission strategies, etc. Those in particular are highly private. People don’t publicly share where they submit articles to unless those articles are accepted. You’ve violated my trust in so many countless ways and yet you still proclaim to be my friend.

    And the further reality is that if I *did* lack personal integrity, I could have made this all stop just by saying the meaningless sentence you want so desperately to hear: “I think the errors in the traditional safe withdrawal rate studies must be corrected by using Rob’s analytically valid method.”

    But I don’t believe that. I do not believe you have offered a valid correction to the safe withdrawal rate question. And I believe that retirement income strategies go much further than the question of a safe withdrawal rate. And so that is why I’ve had to endure your ongoing harassment for months on end now.

    Usually I can figure out the Rob-logic behind what you are thinking, but I really don’t know how you think you come out of this whole episode looking like the good guy. I guess it is because you think you are saving my soul and putting me back on the path of righteousness, or something, huh? If only you had the power to do a little bit of self reflection…

    Now that the whole email history is on display, we have the reminder of how angry you got at the very beginning when I referred to you as dogmatic. Yet, look at the way you’ve treated me for disagreeing with you on something which you don’t even understand. You quote numbers from JWR’s statistical work, but I’m not sure if you can even distinguish a mean from a median. So how can you be sure his work is right? I don’t know either, as I never did get around to digging into it, and I doubt I ever will now. But I’m not sure how a properly calculated lower confidence bound for a 2000 retiree could have been higher than zero.

    Rob, suppose the stock market does drop 65% as you are expecting. It might happen, who knows.

    Step 1: Stock Market Drops 65%

    Step 2: ??

    Step 3: Rob wins $500 million settlement from the Goons, the Goons are sent to prison, the investing public learns about and adopts VII.

    What is Step 2? There isn’t one. You will still be in the same position as you’ve been in for the last 10 years. Why didn’t something happen for you after the 2008 financial crisis? You are like the guy who keeps predicting new ends for the world as each previous prediction date passes by.

    That is why I’m telling you, from one human being to another, that it is time to move on. You are a smart guy, and you could use your talents for something productive. While warning people about the 4% rule is helpful, the way that you go about doing it is rather “catastrophically unproductive” as one wise fellow said to you years ago. I provide a loud voice that is critical of the 4% rule, and so spending your days assassinating my character is counterproductive to your underlying cause. So perhaps you can start fresh with a new issue of social import that carries less baggage for you. What happened in the past is a sunk cost, but you still have a chance to turn things around and start afresh today. And you can do all of this while still being honest and true to yourself.

  19. I see nothing in those quotes that says anything positive or in support of you and your behavior Rob. Instead, we see things like this:

    “Scott’s take on Rob Bennett was well summed up in the comment he made in an e-mail to me saying: “You go about it in a manner that is catastrophically unproductive by adding missionary zeal that inflates your importance and demeans others. The whole ideas that there is a New School of safe withdrawal rates reeks of personal aggrandizement.”

  20. Four more:
    1) ” I know that there is an extensive literature about the predictability of long-term stock returns dating back to Campbell and Shiller’s work in the mid-1990s. I also know that there is an extensive literature about short-term market timing strategies…. But my question is about LONG-TERM market timing strategies. In other words, using market timing over periods of at least 10 years to obtain better returns than a Buy-and-Hold strategy. The literature seems slim.”

    2) “Let me just explain a bit more why I posted about this here. Valuation-Informed Indexing has had critics for years, but until Norbert did it in 2008, nobody seemed to have provided a serious investigation of it. I just couldn’t understand why. And that bothered me.”

    3) “Two papers by Fisher and Statman are still all I can find that provide evidence against long-term market timing.”

    4) “I’m so confused by why Fisher and Statman didn’t consider risk in their idiot switching tests. Valuation-Informed Indexing is much less risky by pretty much any standard I consider. I must wonder… did I make a mistake somewhere? Why haven’t academics already published research about this?”

    Rob

  21. Consistently failing to answer questions is a wonderfully effective way to get banned. Site admins quickly tire of passive aggressive behavior. Even if there’s no specific rule against it.

  22. Here are nine more, Dan:

    12) “It makes complete sense to have an equity allocation that is in some way flexible. Having a completely inelastic demand for equities is a bit bonkers; no-one acts that way with life’s other important commodities.”

    13) “I wrote up the programs to test your Valuation-Informed Indexing strategies against Buy-and-Hold, and I must say that the results look very promising…. I am quite excited about the findings so far. As you say in the podcast, Valuation-Informed Indexing should beat Buy-and-Hold about 90 percent of the time, and I am getting results that support this for various strategies.”

    14) “I have been toying with the idea of sending the paper to the Journal of Finance, which is the most prestigious journal in academic finance.”

    15) “Now that I am accounting for risk, I am even more amazed by how well Valuation-Informed Indexing works.”

    16) You shouldn’t be too excited with great wealth accumulations if they happened due to unusually high valuations, and low wealth accumulations shouldn’t be as scary if valuations are also quite low.”

    17) “My idea is to show many different tables with results over the whole period for returns and risks. Valuation-Informed Indexing always provides more returns for often less risk.”

    18) “No matter what I try, Valuation-Informed Indexing will still perform better in 85-95% of cases for 30 years.”

    19) “I have a new figure for showing this as well. And a nice figure showing the outperformance percentages across rolling periods of lengths between 1 and 40 years. I think it is all quite persuasive.”

    20) “You haven’t seen anything yet! This was just the secondary study. I’m still working on the main one!”

    Rob

  23. Do you have any positive quotes that are less than five years old? From anyone? Or is that when the Great Goon Conspiracy seized control of the internet?

  24. Here are eleven more:

    1) “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing….Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-Hold did better in 8 of the periods.”

    2) “I will take steps in my final paper to test a wide variety of assumptions about asset allocation, valuation-based decision rules, whether the period is 10, 20, 30, or 40 years, lump-sum vs. dollar-cost averaging, and so on, and to show that the results are quite robust to changes in any of these assumptions.”

    3) “Any data mining that I am doing is in favor of buy-and-hold, not in favor of market timing.”

    4) “The findings for “market timing” are so robust anyway, that it hardly matters how we do it.”

    5) “The maximum drawdown from market timing is much less. That is how far the portfolio drops from past highs to current lows. The Buy-and-Holder once experienced a 60.96% drop, whereas the worst drop for market timing was 24.16%.”

    6) “Market timing provides signficantly higher returns at a comparable level of risk.”

    7) “The market timer enjoys a far less risky strategy.”

    8) “On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks Buy-and-Hold strategy but with substantially less risk. Meanwhile, market timing provides comparable risks and the same average asset allocation as a 50/50 fixed allocation strategy, but with much higher returns.”

    9) “If everyone increased exposure after a market fall and vice versa, then this would dampen out the big swings in the market aggregates, and we might get shallower boom/bust cycles.”

    10) ““‘I’m excited about this, as depending on what you have already done, I think I can design a study using the Shiller data to provide historical simulations of Valuation-Informed Indexing strategies against fixed Buy-and-Hold strategies and also lifecycle strategies (declining allocation to stocks as one ages). If Valuation-Informed Indexing consistently outperforms fixed and lifecycle strategies, then the proof is in the pudding so to speak. Given how well valuations help to explain withdrawal rates, I think there is a lot of potential for this topic.”

    11) “Yes, Virginia, Valuation-Informed Indexing Works!”

    Rob

  25. We are talking about why you are banned from boards, Rob.

    Wade states:

    “”Rob lives in an imaginary world of death threats and threatened
    academic researchers and so on, as you would discover if you waste
    time reading what he writes. Just thought I’d let you know, straight
    from the horse’s mouth.”

    He also stated that you are wrong on the SWR issue and that you caused him more harm that those you describe as goons.

    It is your BEHAVIOR, Rob. Do you have an issue with reading comprehension?

  26. Here are five things that Wade Pfau actually said:

    1) “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach [New School safe-withdrawal-rate research].

    2) “Are you aware of Shiller offering asset allocation advice based on PE10? …. If you read Rob Bennett’s stuff carefully, I think he did provide an important contribution in terms of describing a way for PE10 to guide asset allocation for long-term conservative investors. I also think he was right on the issue of safe withdrawal rates.” — Posted at the Bogleheads Forum discussion board.

    3) “I am also extremely grateful to Rob Bennett for motivating this topic and contributing his experience and encouragement.” — Written in Acknowledgments section of Wade’s breakthrough research paper.

    4)”You deserve much of the credit as the whole idea of Valuation-Informed Indexing belongs to you.”

    5) “I definitely need to cite some of your work as the founder of Valuation-Informed Indexing, as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of PE10 but never discussed how to incorporate it into asset allocation, as far as I know.”

    There are links to all of these statements (and scores and scores more) at my web site.

    Rob

  27. Stop trying to divert the topic, Rob. We are discussing why you are banned. As pointed out, Shiller and Pfau do NOT agree with you.

  28. Do you think that Shiller agrees with Bogle, Sammy?

    Bogle is saying the same thing today that he said before Shiller published his “revolutionary” (his word) research findings in 1981.

    Shiller was awarded a Nobel prize for his work.

    Please point me to one change in Buy-and-Hold that Bogle made as a result of these Nobel-prize-winning research findings.

    Did Shiller tell us anything new? If so, what?

    If he didn’t tell us anything new, why the Nobel prize?

    Valuation-Informed Indexing is Buy-and-Hold updated to reflect the last 36 years of peer-reviewed research. That’s the entire deal.

    Rob

  29. Again, you lie. Shiller does NOT agree with you. He has said time and again to not use his work to time the market and he also repeated that people should still hold stock. You have replied Nancy times that you feel he is lying.

    Wade also does not agree with you. In fact, he said the following about you:

    “Rob lives in an imaginary world of death threats and threatened
    academic researchers and so on, as you would discover if you waste
    time reading what he writes. Just thought I’d let you know, straight
    from the horse’s mouth.”

    You can even get any of your imaginary supporters to post anonymously at your website.

    Wake up and smell the coffee, Rob.

  30. Shiller obviously agrees. And the people who awarded Shiller the Nobel prize agree.

    And the thousands of our fellow community members who asked that honest posting be permitted on our boards and blogs agree at least in part.

    Wade Pfau obviously agrees. He spent months researching Valuation-Informed Indexing and declared at the end of his work that: “Yes, Virginia, Valuation-Informed Indexing works”

    I could go on and on. I’ve spoken to economists who agree and bloggers who agree and investment advisors who agree. I’ve had site owners who banned me from their sites tell me in the e-mail informing me of the ban that their personal view is that my site is the best investing site on the internet. I would say that that’s a pretty darn strong statement of agreement.

    What I don’t have is people who will say out in public that they agree after they see what you Goons will dish out to them when they do. People don’t like to be threatened. People don’t like to see their reputation smeared. There is a widely shared dislike for these sorts of practices. To get people to say what they believe in clear and firm and bold ways, we are going to have to lessen the penalties imposed for doing so.

    The core issue here is that stocks are today priced at two times fair value and so to tell people what the last 36 years of peer-reviewed research tells us re how stock investing works is to tell people that they need to divide the number on their stock portfolio by two to know the true and lasting value of their life savings. For many of us, hearing that we need to divide the number on our portfolio statement by two is like hearing that we have cancer. How popular do you think the guy is who tells millions of people that they have cancer, Sammy? That’s me.

    In the long term, people who have cancer are better off knowing that they have cancer. Once you know, you can take steps to deal with the problem. Those who don’t know the true value of their stock portfolio cannot plan effectively for the future. They may not like hearing the realities. But they NEED to know the realities.

    Doctors can get away with telling their patients that they have cancer because it has become standard industry practice in the medical field to tell patients where they stand. It has not become standard industry practice to shoot straight with stock investors about the last 36 years of peer-reviewed research. Shiller published his “revolutionary” (his word) research findings in 1981 and the longest and biggest bull market in history began in 1982. No one wants to know the realities in the middle of a bull market. Prices moved downward sharply in 2008 and we saw some slippage in support for Buy-and-Hold in early 2009. But then prices shot back up quickly and we have been stuck in fantasyland in the years since.

    I think things are going to change in the days following the next price crash, Sammy. There’s no benefit to living in fantasyland after you have lost most of your retirement savings. At that point, I don’t see what opposition there would be to coming clean. So this is all going to come out. Lots and lots and lots of people will be saying in those days that they supported me all along but that they just were afraid to come forward. And they will be telling the truth.

    I wish it weren’t so. But that’s where we stand, my good friend. Lots of people agree with me either in whole or in part. But you would need to cut back on the abusiveness a notch for them to gather the courage to speak up. And I have a funny feeling that you have no intention of taking things in that direction at this point in the proceedings.

    My best and warmest wishes to you and yours, old friend.

    Rob

  31. i dont know of a single person that agrees with you Rob, yet each of the points I mentioned are well documented and discoverable with a simple Google search. I would be happy to provide examples again if needed.

  32. “My critics tell people asking about me that I have been banned at over 20 sites. They do it to shame me. It is my view that the bannings reflect poorly on Buy-and-Hold. If Buy-and-Holders were confident in their strategy, challenges to it would not provoke bannings. When the Buy-and-Holders themselves have come to believe that the strategy can survive only for so long as it is protected in a bubble, why should any of us who have not yet drunk the Kool-Aid be impressed?”

    You are banned at so many sites because of your bad behavior. if it was 1 or 2 times or incidents with a few people, that would be one thing, but when you are consistently banned for outright lies, defamation, unwillingness to back up comments without proof, etc., then it is very apparent you have a behavior issue.

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