An Ambulance Screams By, Do You Feel Happy Or Sad?

I feel lucky that I don’t need the ambulance and I hope that the ambulance arrives in time.

ROB – Hmmm, had no idea you had a “goon squad” after you. Care to share a link or two and highlight where the original debate started?

Here’s the URL for an article that contains 101 snippets of posts that my fellow community members put to discussion boards asking that the site administrators do something about the abusive stuff and permit civil and reasoned discussion of these important questions to go forward:

Here’s the URL for an article explaining why the reckless promotion of Buy-and-Hold for 30 years after the academic research showed that there is precisely zero chance of it ever working for the long-term investor is the primary cause of the economic crisis:

The debate started on May 13, 2002, when I put a post to a Motley Fool board pointing out that the Old School safe withdrawal rate studies (these are the studies that financial planners use to help us plan our retirements) get the numbers wrong because they fail to account for the effect of changing valuation levels. Here’s the URL to an article in which I quote 13 big-name experts who have acknowledged in the days since that I am right about this:

There are two sides to every story, and the least I can do is understand both sides.

Yes. This is the best possible reaction to the words that I posted above. The story that I tell is so strange that it it unbelievable for those who have much experience with how humans act. Yet I document the entire thing. There’s got to be some sort of explanation for how such a thing happened.

Many of the Goons are friends of mine from the old days, Sam. The guy who leads the Smear Campaigns (he has devoted the last eight years of his life to destroying me) is the first person named on the Acknowledgments page of my book! He was the fellow who started the Motley Fool board at which I posted about safe withdrawal rates. He had a FAQ statement at that board telling newcomers to “read everything by Rob before posting, his stuff is the best stuff here ” (that’s a paraphrase). There’s obviously something very, very weird going on here.

What’s going on is that a group of academics who in most respects did wonderful work also just happened to make a mistake and that mistake has grown more and more and more dangerous over time. The academics discovered that short-term timing (changing your stock allocation with the expectation of seeing a benefit within a year or two) never works. This was huge. This changed the history of investing. This insight is the foundation for the entire Buy-and-Hold Model, for all of what has become the conventional investing wisdom of the past three decades.

The mistake was that the academics jumped to the conclusion that long-term timing (changing your stock allocation with the expectation of seeing a benefit within five or 10 years) also doesn’t work. Nothing could be further from the truth. Long-term timing always works. There is not a single exception in the historical record. And long-term timing is required for success as an investor. Investors who fail to engage in long-term timing are virtually certain to see their portfolios wiped out at some point in their investing lifetimes. The consequences of failing to engage in long-term timing are truly tragic.

We didn’t learn this until 1981 (this is after millions had already been spent promoting Buy-and-Hold), when Yale Professor Robert Shiller published research showing that valuations affect long-term returns and that therefore the claim of the earlier academics that the market is efficient and sets prices properly in the short term is pure nonsense. Here is the URL for an article quoting numerous authorities for the proposition that the efficient market theory has been shown to be pure nonsense:

Here is a URL linking to 20 studies that show that valuations affect long-term returns (if valuations affect long-term returns, it obviously does not make sense to stay at the same stock allocation at all valuation levels):

The situation that we are in today is that 90 percent of investors believe that it is not necessary to time the market to achieve long-term success. Yet common sense and 30 years of academic research and the entire historical record says the opposite — that long-term timing is critical. The big problem is that The Stock-Selling Industry is embarrassed about the mistakes they have made. They have spent hundreds of millions of dollars promoting an investing strategy that has caused the greatest loss of middle-class wealth in the history of the United States!

My belief is that the Personal Finance Blogosphere offers us The Way Out. We today possess the power to explore the realities of stock investing without getting the permission of The Stock-Selling Industry. Once we do, The Stock-Selling Industry will come around. I have spoken to a number of financial planners who have indicated that they would love to be able to tell the straight story but feel that it would be career suicide to do so in today’s environment. Once the cat is out of the bag, there will no longer be any penalties attached to telling people the straight story.

The rub is — Lots of people who run blogs or post at boards have endorsed Buy-and-Hold in earlier days. They too are embarrassed to admit their mistakes. And these people sincerely believe that Buy-and-Hold kinda sorta works. They are suffering from cognitive dissonance. They have believed in this stuff for so long that it comes as a shock to hear that it doesn’t work and they just cannot easily let that in. So their first reaction is to silence or shun those telling the story of what the academic research of the past 30 years has revealed to us.

My belief is that we need to accept that people are in pain and proceed accordingly. We should be sensitive. We should be diplomatic. We should be loving. All these things are good. But we must also insist that honest posting on the flaws of the Buy-and-Hold Model be both permitted and encouraged at all investing blogs. Over time people will get used to the idea and come around. But people cannot get used to an idea that they never hear! We have to get the ideas out there to have any chance whatsoever of taking things to a positive place.

We are in a period of transition. The people who developed the Buy-and-Hold Model taught us some wonderful stuff. Their work is the foundation for all the strategies that I explore at my site. But their first-draft effort at developing a scientific way to invest was not perfect. We need to help them out by fixing the mistakes they made. Even if they do not want us to help them out, we must do so — it is not in anyone’s interest (least of all the Buy-and-Hold advocates) for the current state of affairs to continue. The current state of affairs is a disaster of epic proportions.

I agree that one can’t buy and hold forever. There has to be an ultimate exit price.

This is a common-sense observation. How often do you see discussions of what that exit price is? We all need to know the answer to this question. We are not going to figure out what the answer is until we open up the possibility of having lots of smart people share their thoughts on the question. We need to have thousands of people providing constructive input. We cannot get to first base so long as there are people insisting dogmatically that there is no price whatsoever at which stocks no longer offer a good long-term value proposition. We need to do something about the dogmatism of the most strident Buy-and-Hold advocates.

There is no one answer to the question you raise here, Sam. I am not saying that I know the one definitive answer. I am saying that we all should support the idea of encouraging extensive discussion of the question. It’s a very, very, very. very good question. Is there some price at which stocks no longer offer a good long-term value proposition? If yes, what is that price? We all need to know. At the very bare minimum, we all need to become informed enough to be able to talk intelligently about the matter. We need to work together to launch a national debate on what really works in stock investing.

Rob
.-= Rob Bennett´s last blog ..Podcast #193 — My Vision =-.

My financial a-ha moment is when i read this story about a couple who managed to keep their living cost to $12k annually. I realise that I won’t get to that level but it opened my eyes about the possibility of living simply and cheaply. The implication is the sense of freedom in knowing that I don’t need to keep a high-paying job I’m not passionate about in order to maintain a decent lifestyle. While I’m still doing this type of job, I feel better knowing that there is a light at the end of the tunnel.

My life a-ha moment is when my beloved told me that I should accept life as it is and appreciate it. I swear that at that time I thought it was God talking to me through him.

As for the ambulance moment, well, if i was in the car, I would get busy trying to get out of their way. No particular profound feeling other than “i better get out of their way”.
.-= Bytta @151 Days Off´s last blog ..Day 3: The Investment Review: Time for the Truth =-.

I walk down my street at night,
The city lights are cold and violet.
I am comforted by the
approaching sound of trucks and sirens.
Even though the world’s so bad
these men rush out to help the dying
and though I am no use to them
I do my part by simply smiling.

– “Ampersand” by Amanda Palmer (from Who Killed Amanda Palmer)

When I first heard that song in the Winter/Spring it gave me a new perspective on ambulances/fire trucks. As for ah hah moments, I know that marrying someone w/massive student loans changed how I regarded finance. But more on that on my Friday Financial Foul Up. :)
.-= Mrs. Micah´s last blog ..Why I Don’t Want to Retire Early =-.

@ Rob – I donno man, you seem a little eccentric to be honest. Saying “taking the bait” etc is just kind of weird.

@ Admin – The best feeling is when people band together and get out of the way, like someone said above. It’s the same feeling as during 9/11 in NYC. We banded together, in fact the entire country banded together to support each other.
.-= The Genius´s last blog ..An undergraduate think tank? =-.

How come there are other commenters on previous threads that use the term “Hokey Rob” etc? What is it about your comments that rile people up?

You asked, Sam.

There is a specific answer and a general answer to your question.

The specific answer is that I told people about an error that a fellow made in a retirement study and he became angry about this. He has spent the last eight years of his life following me around the internet and destroying boards and blogs that permit me to post. He has a gang of Goon friends that help out. The guy owns a discussion board at which his Goon Squad meets and decides what blog to attack next and what tactics to use and all this sort of thing.

I have told the Goons that I am looking for a lawyer to take the case on a contingency basis so that I can recover the losses that I have suffered from their efforts to destroy my internet business. I also hope to persuade lawmakers to change the law that governs the internet so that this sort of thing can never, never, never happen again. I expect to be contacting a large number of political blogs about this in coming months (many personal finance blog owners have either declined to write about it or have themselves banned honest posting on these matters).

The general answer is that, while 99 percent of all humans are obviously repulsed by the tactics employed by this particular individual and his Goon Squad, about 90 percent of middle-class investors today believe that Buy-and-Hold Investing works. I say that it does not (basing my belief on the academic research of the past 30 years, which shows that the market is NOT efficient and thus does not set prices properly and that the entire Buy-and-Hold Model is therefore rooted in a fallacy).

In ordinary circumstances, this would cause no problem. Learning that an investing strategy does not work is not a bad thing but a good thing as it opens up the possibility of investing in more effective ways. The problem is that people have believed in Buy-and-Hold for so long and feel that they have so much riding on it that they cannot bear to acknowledge the flaws. There is today a Social Taboo against reporting on the research showing that Buy-and-Hold does not work. I violate this Social Taboo on a daily basis. Many generally smart and good people view this as “rude.” They feel that I am hurting the feelings of the many people who believe in Buy-and-Hold.

My view is that it is better for people to learn that Buy-and-Hold does not work from some guy who posts stuff on the internet than to learn it by seeing their retirement plans fail or by seeing their portfolio values crater. My view is that it cannot possibly be a bad thing for me to challenge Buy-and-Hold with my all the words at my command. If I am right, I am helping everyone who reads my words by doing that. If I am wrong, that will obviously come out as the result of any discussions held and having my misunderstandings publicly revealed will cause us all to feel a greater confidence in Buy-and-Hold (that’s obviously a good thing if Buy-and-Hold can stand up to informed scrutiny).

I don’t ever attack the people who believe in Buy-and-Hold. I like the people. It’s because I like the people that I feel bound in conscience to attack the idea of Buy-and-Hold. I have come to believe (again, because of extensive research I have done) that the Buy-and-Hold idea is the most dangerous idea ever developed in the history of personal finance.

I don’t say that this danger was created with malicious intent. I don’t believe that. I believe that the danger is the result of a mistake made by people who also did a lot of good things for us all. Still, the danger is real. I believe that it is the popularity of Buy-and-Hold that was the primary cause of the stock crash and the economic crisis that followed. I believe that we will see another crash unless we open the internet to honest posting on these questions and educate millions of middle-class investors as to the true realities of stock investing.

Many Buy-and-Holders have doubts about the viability of their strategy. I hit emotional hot buttons when I tell them that those doubts are well-founded. People often strike out in anger, people often demand that I be silenced because of the pain that my words cause them. My words should not cause people pain. The fact that they do itself tells a tale. It tells us that investing is an intensely emotional life endeavor.

We need to deal with this matter. We need to talk it out. We need to make sense of it. I am open to any reasonable means of proceeding. Silencing those who know about the flaws in the Buy-and-Hold Model is not a reasonable way of proceeding. That puts off the Learning Experience that we all need to enjoy. That hurts us. We have been putting this off for a long, long, long, long time and this “solution” to the problem has never worked. The only way out of this is through it. All personal finance blogs need to get involved in talking it over.

Talking it over is all upside and no downside. We all end up winners. We can change the history of investing. We can all learn how to retire years earlier. We can get ourselves out of this economic crisis. We can make our blogs 10 times more successful than they have been in the past. We just need to work up the courage to honor our belief in free speech not just in words but in actions too.

If we allow both sides to be told, people will figure out what’s right. But we absolutely must permit both sides of the story to be told. The market cannot begin functioning properly again until we do that. Talking this out is all upside and zero downside for every single person concerned about these matters (and that’s just about everyone).

Rob
.-= Rob Bennett´s last blog ..Podcast #193 — My Vision =-.

I read that happiness is 50% genetic, 40% what you make of it, and 10% how you deal with emergencies. I think we all have different outlooks on things and I hope I can think more like your friend!
.-= Mrs. Money´s last blog ..I Can’t Bring Myself to Pay Extra on the Mortgage =-.

My biggest financial a-ha was realizing that this is a subject that can be learned and mastered. It’s not molecular chemistry, or something equally unknowable (to me).

My parents were never good with money, so I never really learned how important it is to know this stuff for yourself. So I just kind of let the chips fall, and it’s only been recently that I realized that it’s not actually that hard.

Plain-spoken books like “One up on Wall Street” and “I Will Teach You to Be Rich” were a godsend.
.-= Joel´s last blog ..New Year’s Resolutions: 10 Steps to Get Your Financial Life in Order =-.