Can Two Schools of Thought on How Stock Investing Works Co-Exist?

Valuation-Informed Indexing #346

by Rob Bennett

The safe withdrawal rate is always 4 percent. Unless it is a number that varies from 1.6 percent to 9.0 percent depending on the valuation level that applies on the day the retirement begins.

Stocks can be expected to provide a long-term return of 6.5 percent real. Unless valuations are currently so high that the likely long-term return is a negative number or so low that the likely long-term return is 15 percent real.

Stocks are always the best asset class. Except at times at which valuations are as high as they have been for the past 20 years.

Market timing never works. Except it always works for investors who follow a valuations-based market timing strategy who are willing to wait 10 years to see good results.

It’s confusing to have two schools of thought as to how stock investing works.

Still, the reality today is that there really are two schools of thought based on research compelling enough to have its author awarded a Nobel prize. Eugene Fama showed in 1965 that the market is efficient and thereby provided the impetus for development of the Buy-and-Hold strategy. Robert Shiller showed in 1981 that valuations affect long-term returns and thereby provided the impetus for development of the Valuation-Informed Indexing strategy. Both men were awarded Nobel prizes in 2013.

Can this marriage be saved?

I like Buy-and-Holders. They are smart and they have contributed hundreds of powerful insights to the literature. They are passionate about investing but try to avoid emotionalism. They support the idea of rooting one’s investing decisions in what the peer-reviewed research says. What’s not to like?

A good number of Buy-and-Holders don’t like me even a tiny bit. I am banned at over 20 investing discussion boards and blogs. Site owners who love my work have told me that they felt no choice but to ban me because things I said upset their readers and their readers threatened to abandon their sites unless they took action.

I think the marriage can be saved. We need to see a major figure on the Buy-and-Hold side (John Bogle is the person best suited to play the role) to make a public statement explaining why Buy-and-Holders have not been able to get along with Valuation-Informed Indexers in the past and why they must begin doing so in the future.

Shiller is always friendly to those who hold investing views different than his own. His family vacationed several times with the family of Jeremy Siegel and all got along just fine. When I see Shiller speak in public about his differences with the Buy-and-Holders, the word that comes to mind to describe his manner is “affable.” He doesn’t take this stuff personally. He cares deeply about the subject matter. But he possesses the humility and sense of humor needed to disagree with the Buy-and-Holders without being disagreeable to them.

Many Buy-and-Holders are like Shiller in this respect. The trouble on the Buy-and-Hold side is that it has long been the dominant school of thought. That means that the responsibility they feel to get it right weighs more heavily. If Shiller discovered an error he made some years back, he would be embarrassed. But that’s as far as it would go. Shilled’s writings have influenced the investing choices of perhaps 10 percent of the population. And even in those cases his influence was not total. Investors who follow Shiller’s ideas in almost all cases know the case for Buy-and-Hold and in many cases employ some principles of the Buy-and-Hold strategy in their own choices. So any mistakes that have been made by Shiller will likely prove to be something less than catastrophic in their impact on investors.

The same cannot be said with mistakes made on the Buy-and-Hold side. The negative reality associated with believing in the dominant strategy is that your ideas influence millions in an all-encompassing way. Buy-and-Holders do NOT necessarily know about Valuation-Informed Indexing.

I can offer personal testimony re this one. When I discovered the errors in the Buy-and-Hold retirement studies (no valuation adjustment!), I continued to believe in the overall strategy for several months. Why? I had never heard of any research-based alternative . I assumed that it was only the retirement studies that were flawed and that the strategy as a whole was still good. It is embarrassing today to acknowledge this. But this is how the human minds works — we continue to hold confidence in a paradigm until the cognitive dissonance associated with doing so becomes so strong that we can no longer ignore it and are forced to look for new ways of thinking.

The Buy-and-Holders could have been teaching error for many years and not have even been challenged re their contradictions because most of us assumed that, if there really were something wrong with the strategy, someone else would have long ago discovered it and spoke up about it. In fact, that’s just what I think has happened. As time has gone on, the errors have harmed more and more people. And that reality has made it harder for those who should be calling the errors out to do so. The Buy-and-Holders did not start out seeking to hurt investors. None of us want to be the one hurting their feelings by saying that they have done so.

It’s not possible that both schools of thought are legitimate in an ultimate sense. They are rooted in opposite premises and they generate opposite strategic conclusions. But as a society we cannot make a switch from Buy-and-Hold to Valuation-Informed Indexing with the flip of a switch. We need to have a transition time-period in which both schools of thought are viewed as at least somewhat legitimate so that they can be compared and contrasted.

For that to happen, we all need to adopt the manner exemplified by Robert Shiller. We need to argue our viewpoints with forcefulness. We learn most quickly when our views are challenged and when other views are presented effectively. But we need at all times to evidence warmth and friendship to those on the other side of the table. We learn best together. We all want the same thing — to invest effectively. We need to see some big-name Buy-and-Holders step forward and ask for more positive interactions between the advocates for the two schools of thought.

Rob’s bio is here.

  • Dan V

    I’ve seen enough of your “bad behavior” to know what exactly it means. Wild claims made with no supporting evidence. Ignoring direct questions. Pretending not to understand someone’s point, or taking one tiny point from a comment intentionally out of context, as opportunities to repeat your talking points yet again. Insisting on always having the last word. Transparent lies. Claiming total strangers have personally made death threats against you. Threatening people with prison sentences. And on and on.

    This the behavior that your moral scruples absolutely will not allow you to dial down. Fine, but the next ten crashes won’t make it any more acceptable.

  • Sammy Soda

    Pointing out you bad behavior is not harassment. Stop whining and crying like a baby. Be a man and take responsibility for your failures.

  • Sammy Soda

    There is not a single person, other than you, that says people can’t or won’t post honestly. It is just another one of your fairytales. There is no “10 percent” group. You just made it up.

  • RobBennett

    We need to have everyone feeling free to say precisely what they believe about stock investing, Dan. Hiding under new user names and “toning down” is exactly the OPPOSITE of what we need to see. We need to see people working up the courage to stand up to you Goons.

    Take Bill Bernstein. In May 2002 I put forward my famous post saying that the safe withdrawal rate was really 2 percent because of valuations That’s the one that brought on all the commotion. Bernstein published a book in the SAME MONTH in which he said that you need to subtract two percentage points from the 4 percent SWR to account for the high valuations. That’s the same thing, isn’t it? Subtract two from four and you get two — Bernstein, a guy that all Buy-and-Holders love — was saying the exact same thing as the hated Rob Bennett going back to the first day!

    So why doesn’t Bernstein get harassed. He doesn’t say anything that hurts Buy-and-Hold from a marketing perspective. He doesn’t say “the Buy-and-Holders got the numbers wrong” or “the Buy-and-Holders need to correct theirs studies” or anything like that. So the Buy-and-Holders just ignore the comment buried deep in his book and continue to push the same garbage studies. The money keeps rolling in!

    I tell people that we need to figure out the realities. If the Buy-and-Hold numbers are really as wildly off as Bernstein says they are, we need to get those darn studies correct before they cause even more failed retirements. It makes it hard to work a con on millions of people when someone says something like that. So I am Public Enemy #1.

    I wouldn’t want to get the numbers wrong in my retirement plan. So I try to help out the people who to this day are being taken in by the Buy-and-Hold studies. There are millions of people who have been taken in by these studies. So this is a big deal.

    That’s what is meant by the term “bad behavior.” I am exposing the great Buy-and-Hold con. I want to do that, Dan! I don’t want to post under some phony name and I don’t want to “tone down like crazy.” I want to expose the con. Not because I don’t care about my Buy-and-Hold friends. I want to expose the con because I want us all to move on to better things. I don’t want to see my Buy-and-Hold friends continue to waste their energies covering up all the time.

    Bernstein should have said things in the way that I said them. If he had, we would have seen that article in the New York Times years ago and we all would be living far richer (in every sense of the word) lives today.

    We don’t need to see Rob Bennett tone down, Dan. We need to see everyone else tone UP. This affects each and every one of us. We need to get this stuff right. It’s important. We don’t get there by toning down. We get there by toning UP. Either Buy-and-Hold can meet the challenge we put to it or it cannot. If it cannot, we all need to move on to better things.


  • RobBennett

    You are right that there are lots of others — all Buy-and-Holders! — who have said similar things. But you are wrong that there is not significant support for the idea of permitting honest posting on the last 36 years of peer-reviewed research at every investing site on the internet. About 10 percent of every board community requests that. Another 10 percent has enough interest in VII that they ask questions about it and become quiet only when they see insanely abusive posting that scares them away.

    The Buy-and-Holders are certainly in the majority today. But that 10 percent will quickly become 20 percent and then eventually 40 percent once there is a break in the wall. And I think it would be fair to say that that break in the wall will come in the days following the next crash. Buy-and-Hold is living on borrowed time. The tactics that we have seen from you Goons are desperation tactics. You don’t see that sort of thing from people who believe that they can prevail in civil and reasoned debate.

    All signs are that Valuation-Informed Indexing is the future and that Buy-and-Hold is the past. That’s Rob Bennett’s sincere take re this terribly important matter in any event.

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


  • Dan V

    “We will have to see how it all plays out following the next crash.”

    Why wait? You could rejoin every single board that banned you TODAY. Just pick a new user name and tone down the crazy. You’ve been talking about writing another book for years. And talking about joining political boards. But you throw up your hands and say absolutely none of it can be done until after the next crash. Honestly, you act as helpless as a newborn baby. Take some control of your life, man.

  • Sammy Soda

    What I am saying is not new. I have seen many others saying the same thing, yet you still ignore it. The only support you have is what you dream up.

    500 times zero is still zero.

  • RobBennett

    So says you, Sammy. But you’ve obviously seen the same reactions from lots of ordinary non-Goon investors that I have seen. There’s nothing else that could possibly explain your behavior.

    Fair enough?

    Going through the transition has been a tough business. But it will be worth it about 500 times over when we all make it together to the other side.

    I naturally wish you all the best that this life has to offer a person, my good friend.


  • Sammy Soda

    “We will have to see how it all plays out following the next crash. ”

    We have watched your story play out for the past 15+ years. It has been a train wreck.

  • RobBennett

    It’s investor emotion that creates the two different universes, Dan. First, we push stock prices up to two times fair value. Then, when they fall back to earth as they always do, we get depressed and send them even lower, to one half of fair value.

    I am telling people to adjust for valuations so that they know the true, lasting value of their portfolios. That’s not a message that most people want to hear when prices are at two times fair value because it means dividing what you thought was your retirement account by two. But the story may be very different when we are on the other side and I am able to tell people that I tried to help them out when they could have done something about it.

    We will have to see how it all plays out following the next crash. I think we are all going to take a huge step forward. It didn’t happen the last three times we all lived through something like this. But we didn’t have 36 years of peer-reviewed research showing us how the market really works the last three times. I think that will make all the difference. I think we are on the verge of achieving some amazing steps forward.

    Hang in there, man. It’s going to be a bumpy ride!

    My best wishes.


  • Dan V

    Rob, you remind me of the Star Trek episodes that traveled to the evil parallel universe. The names are the same, the institutions familiar, but the realities are completely different.

    In your universe, you and Wade are BFF’s. Bantered quotes printed in the NY Times. Greaney is in prison. You run Bogleheads. All three of your books are on the best seller list. Everyone talks VII. Your $500 million payday is invested wisely and honestly.

    But back here, neither Greaney nor Wade have mentioned you in years. No payday, no Bogleheads, no new books, no recognition of any kind. In fact this universe sucks for you in every conceivable way. Makes me wonder why you keep dropping in to visit.

  • Sammy Soda

    After a failed retirement, failed investment plan and banning from most boards, you thought you would have learned something by now. Unfortunately, your family has to pay the price for what you have done.

  • RobBennett

    Okay, Sammy.

    My best and warmest wishes to you and yours.


  • Sammy Soda

    Blah, blah, blah, blah. You have been set straight time and again, year after year, yet your poor behavior continues and you want to spin a story to justify it. I have never seen anyone else lie as much as you and then trying to tell us about his “honest” posting. People that tell he truth don’t have to try and convince people they are “honest”.

    When you keep “pissing in the wind”, don’t sit there and wonder why your shoes are always wet.

  • RobBennett

    I posted about the errors in Greaney’s retirement study at the board that I had built into the #1 most popular board at the Motley Fool site. That was a retirement planning board. So it was perfectly appropriate to post there about the errors in a retirement study. And there were hundreds of my fellow community members who told me that I had started the most exciting discussion in the history of the board. They urged me to ignore the abusive behavior of you Goons and continue posting.

    The one thing that those people couldn’t stand was the abusive stuff. They asked you many times to knock it off and you refused. So now the board is dead. You “won.”

    You say that I should “move on to something new like the rest of the world.” This site is new, this site is the rest of the world. It looks like you followed me. Why did you do that? There’s no law that says that you have to post comments here every week. Follow your own advice and find something new like the rest of the world.

    You call it “highjacking” a thread when Greaney tells someone that 4 percent is the safe withdrawal rate at all times and I correct his error. People use retirement studies to plan retirements. When you get an important number wrong in a retirement study, you can cause someone to suffer a very serious life setback. If I were in Greaney’s shoes, I would consider the person who pointed out to me an error that I made in my retirement study my best friend in the world. By doing that he would be saving me from a lot of future embarrassment. For Greaney, the embarrassment keeps getting worse. But that is his doing, not mine. He needs to correct the darn study. Once he does that, all the embarrassment goes away.

    I think that the people putting forward the death threats and the threats of career destruction are the problem. I don’t think that the hundreds of people who have asked that the abusiveness be brought to a full and complete stop are the problem. it is of course true that not too many people today possess a full appreciation of the flaws of the Buy-and-Hold strategy. But that will come. THROUGH RESPECTFUL AND CIVIL DISCUSSION. We need to all work together to get the word out. That’s exactly what I am trying to do and that’s exactly what you are trying to stop me from doing.

    I respect you as a person. But I don’t believe that Greaney’s study contains an adjustment for the valuation level that applies on the day the retirements begins. And I know that Shiller showed in 1981 that valuations affect long-term returns. So I have to say that. It bugs the heck out of you when I say it. But I don’t have any choice. The people that I meet on boards become my friends over time. I could not live with myself if I saw that my friends were going to suffer failed retirements and I didn’t say anything.

    I am going to continue to post honestly re these matters. I am also going to continue to say positive things about my Buy-and-Hold friends when I can, which is often. I gave Greaney’s study a five-star review in which I argued that it advanced our understanding of safe withdrawal rates in a big way from where it stood in the days before his study was posted. I would say that again because I think it is true. But I cannot say that his study contains a valuations adjustment. I cannot say that his study gets the numbers right.

    I hope that all that is sufficiently “respectful” for you, Sammy. I respect you and I respect Greaney and I respect Bogle and I respect all of my Buy-and-Hold friends. But I do not feel even a tiny bit comfortable about the idea of putting on some sort of act where I lead people to believe that I think there is a valuations adjustment in the Greaney study. Thousands of people have looked at it and not one has ever found a valuations adjustment. I think that that is because I was right on May 13, 2002, there really isn’t one there. So I need to say that when the subject comes up whether you find that respectful behavior or not. I need to show some respect for my fellow community members who will be led to thinking that the study is legitimate research if no one has the courage to point out the error in it. The people who use retirement studies to plan their retirements are entitled to some of our respect too, in my assessment.

    I hope that that helps a bit, my good friend.


  • Sammy Soda

    You don’t respect people when you hijack their threads. You don’t respect people when they tell you to stop talking about them, yet you send out tens of thousands of emails about them (Wade). You don’t respect people when you refuse to answer question in a community setting. You don’t respect people when you make up stories about them going to prison just because they disagree with you.

    A respectful person listens to others and evaluates their behavior when everyone else tells them the problem is staring at them in the mirror. In your Bizzaro world, you continue to think everyone else but you is the problem without one ounce of self reflection.

    Want one more example of bad behavior? You go on and on about a post that was 15 YEARS AGO, telling everyone that it is famous, even though it is not (just to build yourself up). Then after 15 years of people constantly reminding you of your errors on this post (because you keep bringing it up), you would think by now you would have something new to say………but no……here we are……you are still talking about your faulty thinking from 15 YEARS AGO. You think it is a bunch of “goons” that are all ganging up on you, when it is people responding to your same old tired posts. Do you want the so called “goons” to go away? Okay……..move on to something new like the rest of the world. 15 years of repetitive blathering is just insane.

  • RobBennett

    I have the greatest respect possible for the PEOPLE who advocate Buy-and-Hold, Sammy. I sing their praises all the time. Every Buy-and-Holder whom I have ever met is smart and it appears to me that just about all of them are top-notch people in a more general sense too. The Buy-and-Holders have made huge contributions to our understanding of how stock investing works. I have learned many, many important things from them. I rank Jack Bogle, the king of Buy-and-Hold as the second most important investment adviser of all time.

    I do NOT endorse the strategy. I believe that the strategy needs to be updated to reflect the 36 years of peer-reviewed research showing that valuations affect long-term returns. I believe that the failure to update the strategy has put millions of middle-class retirements at risk of failure and has served as the primary cause of our economic crisis. I advocate Valuation-Informed Indexing, which is Buy-and-Hold updated to incorporate the findings of the last 36 years of peer-reviewed research in this field.

    What does that add up to, Sammy? I LOVE the people. I consider them friends. I want to interact in a friendly way with them. But I do not want to pretend in any way that I believe that it is okay not to consider valuations when developing investing strategies. I believe strongly that valuations must always be considered by the long-term investor (since valuations affect long-term returns).

    It is my view that I SHOW my respect for my Buy-and-Hold friends by pointing out to them things that I believe they got wrong. I would want my friends to help me out by pointing out my mistakes. So I do for my Buy-and-Hold friends what I would like them to do for me if the tables were turned. So my view is that my behavior is 100 percent respectful.

    Is your of what constitutes respectful behavior different from that in some way?


  • Sammy Soda

    Respectful behavior is what is required, Rob.

  • RobBennett

    Buy-and-Hold is the answer to a prayer, Sammy. Everybody knows that.

    Please take good care, man.


  • Sammy Soda

    “We are saying the same thing with different words, Sammy. ”

    No, we are NOT saying the same thing. There not even one successful case of VII yet. In fact, your example shows the opposite.

    “I think the bans are terrible because I think that Buy-and-Hold very much needs to be challenged.”

    Then learn from your mistakes at stop behaving so poorly.

    “This is the question that Wade Pfau and I explored in the research paper that we had published in a peer-reviewed journal. ”

    You were not an author of Wade’s paper. Your constant lying is just one part of your pattern of bad behavior.

  • RobBennett

    We are saying the same thing with different words, Sammy. I challenge Buy-and-Hold everywhere I go. I make no bones about it. I am proud of it. You view that as “poor behavior.” You favor the bans because you do not like to hear Buy-and-Hold challenged. I think the bans are terrible because I think that Buy-and-Hold very much needs to be challenged. From my perspective, the fact that Buy-and-Holders get so upset over being challenged shows that they lack confidence in their strategy.

    And long-term market timing has been working for the entire 145 years for which we have good records of stock prices. Engaging in long-term market timing is exercising price discipline when buying stocks. How could that ever not produce good results? This is the question that Wade Pfau and I explored in the research paper that we had published in a peer-reviewed journal. I believe that that paper will be featured in an article on the front page of the New York Times in the days following the next price crash and that from that point forward no one will ever question the merit of long-term market timing (price discipline) again.

    The only reason why anyone questions it today is an unfortunate historical quirk. Fama published his research showing that short-term market timing does not work at a time when index funds were not available and when it was thus not possible to practice long-term timing. So Fama never looked at the question. People just jumped to a hasty conclusion that, since the one form of market timing examined did not work, market timing in general did not work. Shiller was the first researcher to look at long-term timing. He showed that it always works. And of course there is now 36 years of peer-reviewed research confirming his “revolutionary” (Shiller’s word) finding.

    My best wishes to you.


  • Sammy Soda

    “Market timing never works. Except it always works for investors who follow a valuations-based market timing strategy who are willing to wait 10 years to see good results.”

    Wrong. There is yet to be even one case yet of someone that has a verified track record with VII. On the other hand, we can see that you have a failed strategy.

    “A good number of Buy-and-Holders don’t like me even a tiny bit. I am banned at over 20 investing discussion boards and blogs. Site owners who love my work have told me that they felt no choice but to ban me because things I said upset their readers and their readers threatened to abandon their sites unless they took action.”

    You were banned because of poor behavior. this poor behavior also resulted in people deciding to no longer speak to you.