Valuation-Informed Equity Investing Strategies Generate Intense Reactions Both from Supporters and Critics

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I believe in market timing. Robert Shiller was awarded a Nobel prize for his “revolutionary” (his word) research showing that valuations affect long-term returns. If that’s so, then equity investing offerd a better value proposition at times when valuations are low than they do at times when valuations are high. So investors who want to keep their risk profile constant over time must be willing to adjust their stock allocation in response to big shifts in stock valuations.

This is very much a minority opinion. Most investors believe that the Buy-and-Holders have the right idea. Investors should identify the best stock allocation for someone with their investment goals and risk profile and then just stick with it. The market will go up and the market will go down. So long as they stay the course, they will end up doing fine.

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It’s hard to buck popular opinion for as long as I have (over 17 years). I have been called every name in the book. I have been banned at every large investing site on the internet. And I have lost many friendships. It hurts to be a social pariah. And when my views are rejected again and again it causes me to question whether I have gotten something wrong.

I stick to my guns on equity investing, however. For two reasons.

One, there is a group that agrees with me. It is a small group, about 10 percent of the population of investors. But that 10 percent doesn’t just casually agree. People in that 10 percent often endorse my views in intensely enthusiastic ways. I have been told by numerous investors that I am the first person who they have ever heard talk about stock investing in a way that makes complete sense to them. I had one fellow devote eight years of his life to researching my ideas full-time and without getting paid a dime for his work.

An academic researcher saw my posts at a discussion board and asked me if I would work with him to produce research examining whether Buy-and-Hold or Valuation-Informed Indexing is the superior long-term strategy. He concluded at the end of the 16 months that we spent working on that research project that: “Yes, Virginia, Valuation-Informed Indexing works!”

I find that remarkable. I did not study equity investing in school. And I I never managed a big fund. I should not be able to teach experts in this field anything about how stock investing works. But there have been dozens of times in which I have been told that I have done just that. It’s a very strange reality.

Equity investing and buy and hold

This tells me that a good number of people have doubts about the Buy-and-Hold strategy. There is something about it that just doesn’t hold water. But most people cannot put their finger on what that something is. When I articulate reasons why the strategy is a dangerous one, it clicks for a percentage of the population. That percentage is small today. But, when the case against Buy-and-Hold clicks for someone, it often clicks hard.

That tells me that I am on to something important. That tells me that, when prices fall hard, as they will in the not-to-distant future if Shiller is right, support for Buy-and-Hold may diminish very quickly and on a very widespread basis. The intensity of the support for my ideas in the small number of cases in which they are supported tells me that those ideas have the potential to have a big impact down the road a piece.

Investor reactions

The other side of the story is that critics of my ideas often hate them with an even greater intensity than that evidenced by the small number of supporters. When people don’t like my ideas, they really, really, really don’t like them.

I don’t see the negative reactions as showing the same thing as the positive reactions. The positive reactions to Valuation-Informed Indexing evidence an excitement over a new understanding of how equity investing works that could change the world in a positive way. The negative reactions evidence defensiveness re the Buy-and-Hold Model.

Buy-and-Hold is the dominant strategy. People really do believe in it. So there is genuine excitement about the Buy-and-Hold concept among its advocates. But there is no good reason why advocates of the strategy should get upset when it is challenged. If they were confident that the strategy is the real thing, they would welcome chances to make the case for it in a civil and reasoned way. Rarely do I come across Buy-and-Hold advocates happy to engage in friendly discussions (there are some exceptions, for which I am grateful). Usually those defending Buy-and-Hold are impatient with questions and anxious to shut them down.

In this case the intensity reveals not an excitement over what could be learned but a concern over what could be discovered. The intensity of the negative reactions to my ideas tells me that even those who follow the Buy-and-Hold equity investing strategy have doubts about its legitimacy that they are trying to suppress. That’s not a good sign. That’s a sign that the strategy has seen its best days and is now on its way to the ash-heap of history.

Rob’s bio is here.

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About the Author

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.”

17 Comments on "Valuation-Informed Equity Investing Strategies Generate Intense Reactions Both from Supporters and Critics"

  1. It all comes down to whether or not Greaney included a valuation adjustment in the retirement study posted at his web site. If he included a valuation adjustment, then I am in the wrong and always have been. But if he had included a valuation adjustment, why would not one person (including Greaney himself!) have been able to identify it in 18 years? It doesn’t take 18 years to identify a valuation adjustment in a retirement study.

    The problem is the embarrassment over the cover-up. The bigger cover-up has been going on not for 18 years but for 39 years. If we had all been thinking clearly, we would have all started talking about the far-reaching implications of Shiller’s work back in 1981.

    Every article from that point forward that recommended Buy-and-Hold should have included a note that there was new peer-reviewed research pointing in a very different direction. We did not as a society launch the national debate that we needed to begin in 1981 and by 2002, when I advanced my famous post pointing out that Greaney’s study lacked a valuation adjustment, the Buy-and-Holders realized that it would look very bad for them to acknowledge that. What kind of expert would be 21 years behind in his reading of the peer-reviewed research? To fail to note in the year 2002 that a retirement study lacked a valuation adjustment would have been to acknowledge that you were 21 years behind in your reading of the peer-reviewed research.

    If I had a magic wand, I would wave it in the air and take us all back to 1981 and we could play it the other way. I am 100 percent certain that that’s what we would do if we had another chance at it. But I am fresh out of magic wands, you know? So we have to figure out some way to fix things from the situation that we are in today, with a 39-year cover-up on the books and with stocks priced at two times their fair value. It’s a mess.

    The other side of the story is that the last 39 years of peer-reviewed research in this field is the most important 39 years of peer-reviewed research in the history of investment analysis, We have been collectively slamming our head against the wall for 39 years now. To ignore the peer-reviewed research when developing your investment strategy is to slam your head against the wall. Do you know the one great thing about slamming your head against the wall for 39 years running? The one great thing is that at any moment you could make a decision to stop doing that thing. And that will feel so, so good! That option will remain open to us in the days following the next price crash, when we will be able to see with our own eyes how much pain always follows from the widespread promotion of Get Rich Quick/Buy-and-Hold investment strategies.

    The 10 percent of us who understand that Shiller’s Nobel-prize-winning research is legitimate research are not going to bring this long national nightmare to an end by keeping quiet about what we know in deference to the delicate feelings of our Buy-and-Hold friends. We have to show our Buy-and-Hold friends the respect of believing that deep down inside they want to get this stuff right and want to be called out on their b.s. when they get something terribly wrong. It’s by calling them out (while recognizing their many amazing contributions as well, to be sure) that we bring the long national nightmare to an end.

    Those of us who believe that Shiller’s Nobel-prize-winning research is legitimate research need to work up the courage to call the Buy-and-Holders out when they suggest that there might be some magical, mystical alternate universe in which it is not 100 percent required for every long-term stock investor to practice long-term market timing (price discipline!)

    That’s the answer, Sammy. I am sure.


  2. No one but YOU is to blame for YOUR failed timing scheme and YOUR failed retirement plan. YOU decided to quit your job.YOU decided to get out of stocks and time the market. Period.

  3. I blame Greaney. But I certainly don’t blame only Greaney. I blame myself (I failed to speak up about the error in Greaney’s retirement study for three years because I was afraid of what the reaction would be). I blame all of us. The Get Rich Quick/Buy-and-Hold urge is inherent in human nature. Shiller’s research shows us how to overcome one of the big weaknesses of human nature by quantifying the effect that irrational exuberance has on stock pricing and thereby empowering us all to resist the Get Rich Quick/Buy-and-Hold urge by engaging in market timing.

    Greaney did not behave well. But Greaney did not do this by himself. It is our collective tolerance of Greaney’s behavior that is the real story. We say what we believe about that behavior when we enact laws against it. But those laws are not self-enforcing. To benefit from Shiller’s amazing Nobel-prize-winning insights, we need to insist on reasonable enforcement of the laws that apply in every field of human endeavor outside of the investment advice field.

    Or so Rob Bennett sincerely believes, you know, Sammy?

    My best wishes to you, dear friend.


  4. And there you go blaming John Greaney and others. Start taking responsibility. Your timing scheme failed. You ruined your own retirement. Stop trying to find a scape goat. You can’t change history. Accept your failures, learn from them and then move on by fixing the mess you got into.

  5. You are only disagreeing with yourself. Anyone can go back and look at the plan you posted in 2002. They can look at all your historical updates since that time as well. Would you like me to post them? People can also visit your website and see all the childish posts as well (referred to in point #2 above). They can see all the lies you made up.

    Here is a tip. Stop blaming everything and everyone else for your own retirement plan failure. Move on and get a job while you still can.

  6. I disagree with all of that, Sammy.

    I am a personal finance journalist. That’s how I make my living. Our inability as a society to make the transition from Buy-and-Hold to Valuation-Informed Indexing is the biggest personal finance story in our nation’s history. So naturally I am going to work it as hard as I can and for as long as I can. And I will of course be rewarded for my efforts once we decide as a society to launch the national discussion that in an ideal world would have been launched in 1981, when Shiller published his research showing that the market is efficient and that there therefore is precisely zero chance that a Buy-and-Hold (price indifferent) strategy could ever work for even a single long-term investor.

    I have seen two sorts of reactions to my work over the past 18 years. I have seen intensely positive reactions from a good number of people. Wade Pfau wrote me to ask if I would work with him on research proving the validity of my ideas and then concluded after 16 months of work and the exchange of scores of e-mails that “Yes, Virginia, Valuation-Informed Indexing works!” That’s a pretty darn positive reaction.

    And there have of course been the intensely negative reactions, the death threats, the demands for unjustified board bannings, the thousands of acts of defamation, the threats to get academic researchers fired from their jobs. That stuff has obviously hurt me as it has hurt all of us. But that stuff does not tell me that I should agree to keep my mouth shut to appease you Goons. It tells me just the opposite, that I should insist on my right to post honestly at every site on the internet. If all of us who believe that Shiller’s Nobel-prize-winning research is legitimate research had been insisting on our right to post honestly going back to 1981, we would as a society have solved this problem a long time ago and we would all be living better lives today.

    I am doing the most important work that a personal finance journalist could ever do and I am proud of the many successes that I have enjoyed over the past 18 years. We know intellectually how stock investing works today. Shiller provided a huge piece of the puzzle with his Nobel-prize-winning research. But what good has Shiller’s work done us? Today CAPE level is one of the highest ever seen in history. Shiller’s work, as amazing as it is, does us no good, if we do not talk about it at every site on the internet. We need to talk about it to understand it and to put it to good use.

    Learning how stock investing works in theory is one thing. Putting that learning to use on a day-to-day basis to make sure that stock prices never again reach the insane levels that cause us all so much financial pain is something different. I believe that my work will play a big role in getting us there at some point in the not too distant future. Cross your fingers, you know?

    I wish you all the best that this life as to offer in any event, Sammy.


  7. There are two problems with that.

    1. With your timing scheme, you wasted the last two decades on the sidelines, spending down your nest egg, forcing you back to work. It’s too late for any crash to save you now as you have little to nothing to put back in the market (timing failure).

    2. After all your childish talk about goons, made up death threats, made up job threats, references to jury trials, prison threats, dreams of people paying you $500 million settlements, etc., I don’t think anyone has even the slightest interest in revisiting all those delusional rantings.

  8. I believe that we will see a different reaction to this sort of thread in the days following the next price crash than we are likely to see today.

    We’ll see.


  9. Just more of the same nonsense, Rob. Where are your supporters? Why are they not commenting here or on your board? Why have people stopped speaking with you?

  10. Here are 15 more:

    16) “All Who Are Still Holding Equities at Present Levels Because Their Financial Adviser Insists That Timing Market Cycles Is Impossible to Do — Read This!” Juggling Dynamite Blog.

    17) “The Fact that Aggressive and Short-Term Market Timing Was Unproductive Did Not Mean That There Were Never Times When It Would Be Wealth-Maximizing to Get Out of the Market.” Scott Burris, Director of the Center for Health Law, Policy and Practice.

    18) “The Amount of Return You Can Expect From a Diversified Equity Portfolio Is Inversely Correlated to the Market Valuation at the Start of the Holding Period. It Is One of the Most Robust Statistical Relationships in Modern Finance.” Todd Tresidder, Financial Mentor Blog.

    19) “Why Would Your Job Be Jeopardized By Such a Sensible Claim?” Marcelle Chauvet, Economics Professor at University of California.

    20) “As Attorney. Tax Expert and Financial Writer Rob Bennett Told Us, the Problem Is That, By the Time Shiller Published His Research, Many Big Names Had Already Endorsed Buy-and-Hold.”

    21) “This Seems to Me to Be a Fundamental Challenge to Some of the Most Basic Tenets of the Bogleheads Paradigm.” Bogleheads Forum Poster.

    22) “I’ve Had Similar Experiences. I Know of Two Young Professors Who Wanted to Do Research on Fundamental Index and Reported to Me That Their Colleagues Advised Them That This Line of Research Could Derail Their Career Prospects.” Rob Arnott, Financial Analysts Journal Editor.

    23) “This Sort of Intimidation Is Not Acceptable. The Cigarette and Pharmaceutical Industries Found Research Supporting Their Products By Funding It. But That Was Big Money Supporting Outcomes, Not Dissuading Others.” Lyn Graham, 25-Year CPA.

    24) “Financial Economists Gave Little Warning to the Public About the Fragility of Their Models. There Is No Ethical Code for Professional Economic Scientists. There Should Be One.” Paper Titled The Financial Crisis and the Systemic Failure of Academic Economics.

    25) “The Situation [Referring to the Intimidation Tactics Used to Silence Academic Researcher Wade Pfau’s Reporting of the Dangers of Buy-and-Hold Investing Strategies] Seems Well Below Any Professional and Academic Acceptable Standards.” Albert Sanchez Graells, Law Lecturer.

    26) “This Is What Investing Should Be — Calculated, Deliberate, Confident, Informed and Simple.” Aaron Friday, Owner of Aaron’s Blob Blog.

    27) “It Is Obvious That Rob, in Attempting to Identify New Safe Withdrawal Rate Strategies…Is Goring Your Ox. If Rob Improves on the Safe Withdrawal Rate Methodology, the Implication Is Clear: You Are All, Metaphorically Out of Business.” Bogleheads Forum Poster.

    28) “Returns Are for the Most Part a Matter of Simple Arithmetic …. Much of Our Industry Seems Fearful of Basic Arithmetic of This Sort.” Rob Arnott, Financial Analysts Journal Editor.

    29) “The Notion That Rich Valuations Will Not Be Followed by Sub-Par Long-Term Returns Is a Speculative Idea That Runs Counter to All Historical Evidence. It Is an Iron Law of Finance That Valuations Drive Long-Term Returns.” John Hussman.

    30) “If the Response Is ‘Who Knew?”, It Won’t Be Much Comfort for Retirees in the Employment Line at Wal-Mart. This Is Especially True Since a Rational Understanding of History and the Drivers of Longer-Term Stock Returns Can Help Retirees to Avoid That Surprise.” Ed Easterling, Author of Unexpected Returns.


  11. All selective comments that lack full context. Tell us, Rob, how many of these people or on your website? What about others outside this list? Where are all these supporters of your ideas?

  12. I don’t think it is silly, Sammy.

    Here are some words by Brett Arends that appeared in an article in the Wall Street Journal on October 14, 2010 titled “The Market Timing Myth”: “For years the investment industry has tried to scare clients into staying fully invested in the stock market at all times, no matter how high stocks go. It’s hooey. They’re leaving out more than half the story. Anyone who followed the numbers would have avoided the disaster of the 1929 crash, the 1970s or the past lost decade on Wall Street…. I wonder how many stayed fully invested because their brokers warned them ‘you can’t time the market’.”

    That’s shocking stuff, deeply scary stuff. If Arends is right that 90 percent of what we hear from the experts in this field about how stock investing works is “hooey,” we are in a bad situation. How did we get to this place? The academics once thought that the market is efficient. If that were so, market timing would be a bad thing. But Shiller showed in 1981 that the market is NOT efficient, that valuations affect long-term returns (and that risk is thus not constant but variable).

    Had everybody switched to Valuation-Informed Indexing back when Shiller showed how essential it is to practice market timing, everything would be good today. But that’s not what happened. Shiller’s advance was so huge that it caused lots of good and smart people to suffer cognitive dissonance. So they just kept on promoting Buy-and-Hold and acted as if Shiller’s work didn’t matter. Now we are 39 years down the line and it makes the Buy-and-Holders look very bad for anyone to speak frankly about what the peer-reviewed research in this field teaches us about how stock investing works.

    So, yes, people are afraid to say what works. Anyone who speaks clearly and honestly makes most of the experts look bad. That’s not a good plan for career growth, Sammy. We’re stuck. To get unstuck, we all need to be trying to understand how we got to this place and what we need to do to begin moving forward. The very first step is to recognize that we are afraid to say what we truly believe about how stock investing works. Nothing else happens until we work up the courage to do that much.

    I was once afraid. I am still. I just work very hard to overcome my fears. Because I feel that it is the only way that I can do good work in this field.


  13. Here are fifteen comments that people have made about my work, out of hundreds that I could cite:

    1) “I Can Appreciate Rob’s Comments….Buy-and-Hold? For the Most Part, a Long Obsolete Theory.” Neal Deutsch, Certified Financial Planner.

    2) “Rob’s Arguments in Favor of Value Investing Actually Make a Lot of Sense in a Way That Should Make Any Rational Buy-and-Holder Uncomfortable.” Pop Economics Blog.

    3) “Rob Bennett Says that Market Timing Based on Aggregate P/E Ratios Can Be a Far More Effective Strategy. This Claim Is Consistent With Shiller’s Analysis and I Can See How It Might Be So.” Rajiv Segthi, Economics Professor at Columbia University.

    4) “FIRECalc May Not Be the Last Word on Safe Withdrawal Rates.” Jonathan Clements, Wall Street Journal.

    5) “In Rob Bennett’s Case, He Was Banned for No Known Listed Forum Policy. Except His Viewpoint Was Different From Other Bogleheads and He Was Perceived As a Threat.” Investor Junkie Blog.

    6) “I Am Intrigued By Your Ideas.” Adam Butler, Portfolio Manager.

    7) “The Calculators on Your Site Are Great Resources. It Amazes Me How So Many People Can Say ‘Valuations Matter,’ Yet in the Next Breath, They’ll Say That We Should Ignore Valuations.” John Marlowe, Logistics Analyst at Hess Corporation.

    8) “His Approach Is Both Mathematically Rigorous and Easy to Understand.” Online Investing AI Blog.

    9) “I Certainly Have Seen the Academic Profession Squelching Unfashionable Ideas and Have Often Been on the Wrong Side of It. Kuhn Shows How Most Pathbreaking Scientific Ideas Are Rejected At First, Usually for Decades.” Carol Osler, Brandeis International Business School.

    10) “Rob Bennett Was an Early Pioneer in 3rd Generation Modeling by Advocating (Through Various Online Forums) that Withdrawal Rates Must Be Adjusted for Market Valuations Consistent with Research by Campbell and Shiller.” Todd Tresidder, Financial Mentor Blog.

    11) “I Am Fascinated by the Growing Body of Research That Revolves Around the P/E10 Ratio by Robert Shiller, Doug Short, Wade Pfau, Michael Kitces, John Hussman, Crestmont Research. Jim Otat, Mike Philbrick, Adam Butler and Rob Bennett.” Kay Conheady in Advisor Perspectives.

    12) “A Safe Withdrawal Rate Is Very Dependent on the Valuation of the Stock Market on the Retirement Date.” Economist Magazine.

    13) “I Have Read Everything I Can About Valuation-Informed Indexing. Buy-and-Hold Is Extremely Problematic. I Respect the Passion, Hard Work and Research That You Have Put Into This Very Important Issue. Your Work Has Huge Value.” Carl Richards, Owner of Clearwater Asset Management.

    14) “The World of Personal Finance Blogging Needs More Rob Bennetts. He’s Passionate. He’s Intelligent. He’s Writing Things That Go Against the Grain.” Financial Uproar Blog.

    15) “The Wealth Management Industry Seems Intent on Containing This Discussion for Fear Clients Might Discover that the Emperor Has No Clothes.” Adam Butler, Portfolio Manager.

    My best and warmest wishes to you and yours, Sammy.


  14. And there you go with yet another long winded post to try and distract as well as avoid the subject. You made up the 10% number. You also have no supporters. Your comment section here and on your own boards have zero comments, other than critics. You claim people are too afraid to post and THAT is what is silly.

  15. Like you frequently do, you make a long winded response hoping to distract from my post. No one if afraid to post. That is just plain silly.

  16. Shiller was awarded a Nobel Prize in Economics, Sammy. Fama (whose research is the foundation stone for the Buy-and-Hold strategy) was awarded a Nobel prize on the same day. The front-page article in the New York Times that reported on this noted how odd is was that two people saying opposite things about how stock investing works were awarded Nobel prizes on the same day because it is not possible that both of them are right. If Fama is right, Shiller is wrong; and, if Shiller is right, Fama is wrong.

    We all need to know which it is. Our retirements are riding on this question.

    Had Shiller published his research in 1961 rather than in 1981, we all would be Valuation-Informed Indexers today. Unfortunately, it did not happen that way. There was a time when all that was known was what Fama’s research showed (that short-term timing never works) and when Shiller’s findings (that long-term timing is required for those seeking to keep their risk profile constant over time) were not yet available. So an entire industry was built around Buy-and-Hold and now there is a great deal of institutional resistance to exploring the far-reaching implications of Shiller’s research findings.

    Wade Pfau and I worked together for 16 months. Those were the happiest days of his life. We co-authored research that was published in a peer-reviewed journal. He was so excited about our findings (we showed that investors who switch to Valuation-Informed Indexing can thereby reduce the risk of stock investing by nearly 70 percent) that he told me that he was giving thought to submitting our research to the most prestigious journal in the field. Yes, he became afraid of how you Goons could damage his career and stopped communicating with me. Not because that is what he wanted. Because that is what he felt he needed to do to be able to continue to work in this field.

    The question is — Is that a good thing? I think that it is a very bad thing. I think that we all should be learning everything that Wade Pfau and lots of other researchers would be happy to teach us if they felt free to explore these questions openly and publicly and in great depth.

    The Wade Pfau incident was not an isolated incident. I have seen the same general story play out on numerous occasions. Rob Arnott told me that he has had similar experiences. He told me that he believes that my work is “solid.” But he also told me that he is afraid to speak out too strongly because researchers who were planning to do work on his investing beliefs were taken aside and told that it would be a career-limiting move to do so. This needs to change if we all are to advance in our understanding of how stock investing works in the real world.

    My best wishes to you.


  17. Your 10% number is totally made up. You have taken selected comments and put them on you website as if that is confirmation that you have supporters. However, if people dig deeper, they will see just the opposite. Wade Pfau, for example detailed all the harm you caused him and will no longer communicate with you. The only comments on your board are from a few critics who check in from time to time. It looks like I am the only one that routinely comments here. All that talk above about people telling you various things is all made up. Other than the critics, there is no one else talking to you. It is all imaginary and you know it. In fact, when pressed on this topic, you blame some nameless “goons” as you call them and then tell any critic that they are going to prison. You then say that it doesn’t matter because the stock market will crash and then all these people will be coming to you with $500 million in settlement payments or in return for all your “valuable insights”.

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