You acknowledge that it is “possible that my ideas would not stand up to informed scrutiny,” yet for some reason are asking for a national debate to determine that. Why can’t you gain that enlightenment here on Pop’s blog? The notion that the Shillers and Bogles of the world would spend their time trying to point out to you the clear flaws in your beliefs is a bit of a stretch, I’m afraid.

You make outrageous claims, offer precisely zero evidence in support of them, and refuse to answer fundamental questions about your strategy. And you wonder why more people aren’t talking about your message? Really? If you think about that a bit more Rob, I’m sure an answer that doesn’t involve conspiracies will come to you.

You seem to have left yourself in the rather peculiar position in which even an investor who bought your thesis hook line and sinker would find themselves incapable of applying it to their portfolio due to your inability or unwillingness to answer questions about doing so. Do you not find that strange?

Thanks again.

I understand, Sid.

and thanks.

Backatcha.

Rob

There’s only one way to find out, Sid.

I offered to appear at the Bogleheads annual convention in 2007 so that I could present my questions to John Bogle and we all could hear his responses. That would have advanced the ball in a big way. Mel Lindauer’s reaction was to change the rules for who could attend the meeting. He said that he felt a need to “protect” Bogle from my questions. I think it would be fair to say that that was not an expression of confidence in Bogle or in Bogle’s publicly stated beliefs.

I don’t know precisely what Bogle would say if we launched a national debate on these matters and I don’t know precisely what Shiller would say. I know for certain that it is important for all of us that we find out as soon as possible and I know for certain that there is only one way to find out. We need to put an end to The Debate About Having a Debate and launch the actual gosh-darned debate.

Is there any reason to believe that it is not necessary for middle-class investors to lower their stock allocations when stock prices go to insanely dangerous levels? I say there is no reason to believe this. The Buy-and-Holders say otherwise.

People are allowed to have different points of view. But in this case the issue is not that the Buy-and-Holders have a different point of view. It is that the Buy-and-Holders object in the strongest possible terms to anyone even asking the question. I am a journalist by trade. Excuse me if that reaction sets off my Spidey Sense.

We need to launch a national debate, Sid. We need to hear from thousands of people, including Bogle and Shiller but also including lots and lots of others. This is a proposition with all upside and zero possible downside.

It is theoretically possible that my ideas would not stand up to informed scrutiny and that a national debate would bring that out. Is that not so?

Rob

All of your “confusion” is a direct consequence of the Ban on Honest Posting on Important Investment Topics, Sid. I have had several bloggers write me and tell me that they are afraid to write about this topic because of what the Goons will do to them and their sites in the event that they “cross” them. If I have heard this from several, then there’s a whole big bunch out there who are feeling the heat but not saying anything. Once we lift the ban, all of these people will be speaking out.

We have had hundreds of people participate in a constructive way in our discussions and we have had thousand express a desire for honest posting. When we lift the ban, you won’t be hearing this just from Rob Bennett, but from thousands of people all offering their own particular take. None of it will sound “counter-intuitive” to you then. When you are hearing the same basic message from so many people, you will come to understand that it is the most natural thing in the world to take into consideration the price you are paying for stocks before spending your money on them.

Humans don’t learn solely through following logic chains. One of the things that marketers have learned is that we learn through repetition. of a message. We have heard the Buy-and-Hold marketing slogans repeated so many thousands of times that many of us have come to believe that there just must be something to them. To get over that, we are going to need to hear the contrary message also repeated many thousands of times. That will happen once we lift the ban. Once we let people know that we want them to offer their sincere thoughts on investing, we will have thousands of people doing just that on all our boards and blogs.It will all work out just fine.

A Ban on Honest Posting is an unnatural phenomenon in a free society. The reason why it makes you feel uncomfortable is that it just sounds so awful to hear that there is a group of people who have insisted on a Ban on Honest Posting on Important Investing Topics. The best way to respond to the discomfort is not to say “Oh, please don’t mention this horrible thing, it makes me feel so awful to know that I am part of a community that has permitted such a thing.” The better response is to take steps to have the ban lifted before the close of business today. Once the ban is lifted, there is no need to make reference to it anymore. Once the ban is lifted, it is all downhill sledding, all upside and zero possible downside.

That’s when the real fireworks (the good kind!) begin!

Rob

The question is — Should we be promoting a model that causes investors to make horrible mistakes or should we be promoting a model that helps investors avoid horrible mistakes?

At the top of the bull, stocks were priced at three times fair value. That means that an investor who had $100,000 of real value in his portfolio was being led to believe by his portfolio statement that he had $300,000 in his portfolio. Say that this person had an aim of saving $200,000 by the age he was at at that time. Going by the portfolio statement, he was $100,00 ahead of his goal. He could afford to buy a bigger house or take a super-nice vacation or buy a second car. If we were shooting straight with him, he would know that he was in reality $100,000 short of his goal and that he needed to buckle down and get serious about saving.

We are now 10 years down the road. The fellow has been spending far more than he would have been spending had he known the realities for that entire 10-year period. Now the market is taking back the money that never existed in the first place. So now he gets to see where he really stands. But he has lost 10 years in which he could have been making more responsible spending decisions. You don’t expect the guy to panic?

He’s right to panic. He’s got something to panic about. Buy-and-Hold caused that panic. Under the Valuation-Informed Indexing model, we would have been telling him all along the true value of his portfolio. He would have been making sound money decisions all those years. He would be in better financial circumstances. And there wouldn’t have been any stock crash. So there wouldn’t have been any economic crisis. The fellow wouldn’t be worried today about losing his job.

Panic is an emotion. It is the reverse side of the Irrational Exuberance coin. Lie to people about how good it is during the supposed good times and you cause them to panic in the supposed bad times. There is nothing good in an investing model that causes both the exuberance and panic emotions to be stretched to the limit. The idea behind VII is to encourage people to root their investing choices in the reality principle.

The only downside of VII is in the marketing department. Emotion sells. But too much emotion destroys entire economies. We are paying a price today for having put marketing considerations in first place during the Buy-and-Hold Era, in my assessment.

Rob

We disagree strongly re this one, Sid.

There’s this one sense in which stock investing is a zero-sum game. If one person earns less than 6.5 percent real, someone else earns more than 6.5 percent real. We agree on that much.

But the volatility caused by Buy-and-Hold hurts every investor alive in very serious ways. There’s nothing zero-sum about that, in my assessment. In that regard, Buy-and-Hold is an extremely destructive force in our society (because it encourages volatility while the alternative, Valuation-Informed Indexing, protects us all from the negative effects of volatility).

I’ll give you an example that has personal significance to me. I did everything right in the insane bull market. I went to a zero stock allocation when the data said that was the right thing to do. I am now ahead in a personal financial sense and will be moving further ahead as the compounding returns phenomenon works it magic. Buy you know what? There’s a good chance that I am not going to be able to enjoy the benefits of all these good calls I have made as an investor.

The 1929 crash caused The Great Depression. The Great Depression led to a world war. We went far, far beyond the valuations levels of the 1920s in the 1990s. In the event that the internet is not opened up to honest posting on important investment topics sometime within the next few years, I think it is fair to say that we will be entering The Second Great Depression. Say that The Second Great Depression leads to another world war. Am I big winners in that event?

There is more to investing than earning a nice return on your money. To care only about your personal return is a mistake. Our decisions as a society to permit only the reckless promotion of Get Rich Quick approaches and to prohibit the discussion of realistic long-term investing strategies has put our economic and political systems under great stress. You can’t destroy the lives of millions of middle-class investors and not also do damage to the social fabric of the society in which they live.

It is going to take years or perhaps decades to rebuild our society from what has been done to it through the promotion of Buy-and-Hold for so many years now. Pollution is not a zero-sum game; pollution is all downside and no upside. Running huge deficits is not a zero-sum game; running huge deficits is all downside and no upside. I put Buy-and-Hold in that category. I don’t view it as a zero-sum game; I view it as all downside and no upside.

If Buy-and-Hold had good in it, we would be able to talk about it in warm and friendly tones at every investing board and personal finance blog on the internet. Why can’t we? It’s because even allowing the conversation puts Buy-and-Holders at such a disadvantage that they feel compelled to seek a prohibition of further discussions. As a journalist, this rubs my fur very, very much the wrong way. I see this as being a very bad sign.

If Buy-and-Hold were a zero-sum game, we could all talk about the pros and cons. What Buy-and-Hold is is a mistake. We have uncovered two amazingly powerful insights over the past 50 years through the academic research. The Buy-and-Hold Model was developed after the discovery of the first and before the discovery of the second. We didn’t know it all when this model was developed. So we made a mistake.

The thing to do when you make a mistake is to correct it as quickly as possible and move on to better things. It is not the mistake that is the problem. It is the cover-up of the mistake that is the problem. The longer the cover-up continues, the worse it is for every single person involved, including all of the good and smart people who developed Buy-and-Hold. Those people are humans. Humans make mistakes. It shouldn’t be such a “controversial” thing to point that out.

It’s not zero-sum to fail to correct a mistake when it is brought to your attention, in my assessment. It is pure destruction. Failing to correct a mistake can lead to all sorts of dark roads. I believe that that is what we are seeing re the Buy-and-Hold matter. The entire “controversy” is a national tragedy. It makes us all look just awful.

Rob

Okay. It’s not guaranteed.

We all need to make a decision as to what we think the long-term return for stocks is going to be. If you fail to do that, you are failing to engage in an essential step of the process of investing rationally.

Buy-and-Hold makes a call on this but the call is hidden and not rooted in a rational assessment (it was rooted in a rational assessment in the days when serious people believed in the Efficient Market Theory, but those days are long gone). The Buy-and-Hold call is that this is going to be the first time in history when valuations have zero effect on long-term returns. That call is so far-fetched that I reject it out of hand.

My personal call is that stocks are likely to perform in the future at least somewhat as they always have in the past. All of the calculators were built pursuant to that assumption. But it’ easy to make adjustments to reflect other calls. If you think things are going to be worse than ever before, subtract something from the numbers. If you think better, add something.

Those who add something or subtract something are investing rationally. They are not agreeing with Rob Bennett, but they are making a different rational choice. Those who follow Buy-and-Hold are failing to even think through the question. This is my objection to the Buy-and-Hold approach. Investors cannot duck this one. They are going to need to live with the results of their call. So they should be willing to spend at least a few moments thinking it through.

If you don’t want to spend much time thinking it through, it seems to me that the natural default is the one I have chosen, to assume that the future will be at least somewhat like the past. The Buy-and-Hold call, that the future will be radically unlike anything we have ever seen in the past (that this will be the first time in history when valuations will have zero effect) makes zero sense to me. I believe that this call is rooted more in marketing considerations than it is in an effort to help investors invest effectively.

Rob

First, it’s Sid, not Syd.

My use of the word “guaranteed” was not an attempt at word games. It was my interpretation of your statement: “My belief is that the future is known. I believe that U.S. stocks will continue to provide an average long-term return of something in the neighborhood of 6.5 percent real.” That sounded to me as if you view that as a guaranteed result.

Second, here’s the definition of a zero-sum game: A situation in which one person’s gain must be matched by another person’s loss. Regardless of your personal beliefs, the fact is that the stock market (before expenses, of course) is precisely that. And my statement regarding a foolish sale was not, as you apparently took it, a disparagement of middle-class investors. Investors of all stripes make foolish decisions every day. I have myself made plenty of them.

I’m less interested in reading about conspiracy theories about posting bans and efforts to fleece broad swaths of investors than I am in trying to figure out just what it is you are proposing. Which is why I’ve tried — numerous times — to get you to provide specifics about the alternative approach to investing that you propose, and to get you to address what seem to be rather fundamental discrepancies between the way you view the markets and the way I do. (You can quote Shiller from now until kingdom come, but I daresay that he’d never claim that the future is known in the stock markets, or that if we could only somehow to convince all investors to behave a certain way that stocks would somehow provide smooth and steady returns year after year.)

Frustratingly, you’ve declined time and again to answer those questions, which leaves me wondering why that is. The most obvious answer is that you can’t. I’d find that hard to believe, simply because it would be odd for someone to invest so much in something without a base level knowledge. But you can surely see how someone would find it strange to read an article denouncing the status quo only to find the author stubbornly unforthcoming about very basic details of their proposed alternative.

I keep trying to scratch the surface of what you’re putting forth, but each time I do, I’m finding, like Gertrude Stein, that there’s no there there.

Should you change your mind and decide to provide substantive answers to my questions, I’d be happy to continue the dialogue. But to continue the current roundabout is akin to trying to nail Jello to the wall, and I’m not interested in that sort of unproductive activity.

Your call, and thanks.

No. I have made no counter-intuitive claims. Syd.

There is nothing even a tiny bit counter-intuitive about the idea that the price you pay for stocks affects the value proposition you obtain from stocks. The price you pay affects the value proposition of every other thing you buy on this planet.

These claims sound strange to you only because you have heard the Buy-and-Hold marketing slogans repeated over and over and over and over again. Repetition works. That’s why television commercials are repeated so often. You have heard these claims so many times that you have come to believe that there must be something to them.

Got milk?

Is there some great intellectual significance to that one? It’s just a marketing slogan. It is repeated at you over and over again to get you to buy something. So it is with the claim that you don’t need to change your stock allocation when prices get to insanely dangerous levels. You believe it. But not because there is something of intellectual significance in the claim. You believe it because you have heard it so many times that a part of your brain has come to think that there just must be something to it.

You have come to believe that the most intuitive thing in the world is counter-intuitive. In eight years of discussion no one has ever put forward even a sliver of logic or data arguing in support of the claim that there is no need to change your stock allocation when prices go to insanely dangerous levels. That’s because there is nothing to put forward.

Logic and emotions are different sorts of things. That’s why it is hard for Valuation-Informed Indexers even to communicate with Buy-and-Holders. We are speaking different languages. To me it is counter-intuitive to think that I would not want to do something to protect myself when stock prices go to insanely dangerous levels. Why the heck would I not want to do that? I mean, come on.

Rob