The More You Know About Investing, The Less You Know About Investing

The More You Know About Investing, The Less You Know About Investing

A professional baseball player knows more about baseball strategy than does a little leaguer.  A nutritionist is more likely to be able to figure out why you have been feeling run-down lately than is your next-door neighbor.   The buyer in a woman’s fashion store is better informed about what colors are trendy today than you are.

Most of us assume that it works that way in investing too. Most of us are worried about what is going to happen to our money. So we put our faith in the experts. Surely they have a better grasp of the realties.

Nope.

It doesn’t work that way.

InvestoWorld is suffering from a big problem. The model that is used to understand how stock investing works is something called the Efficient Market Theory. It was viewed as a promising model in its time and all the investing advice that the experts pass on to us has its origins in this model. You’ve heard that stocks are always best for the long run? That buy-and-hold is the way to go? That timing never works? That’s the Efficient Market Theory reduced to practical everyday investing wisdom.

It’s all wrong.

You see, the Efficient Market Theory has been discredited in recent decades. There was a time when lots of smart people really did believe that this model described reality. For the past 28 years, however, evidence has been accumulating that its not so. There is a mountain of evidence today showing that stocks are sometimes the worst place to put your money for the long run, that some forms of timing not only work but are required for those who want to have a realistic hope of long-term success, that it’s not your stock allocation you want to hold to but your risk level and that doing that requires that you change your stock allocation in response to big price changes.

You were overinvested in stocks from 1995 through the first part of 2008. Pretty much all of us were. We were overinvested because we listened to the experts. The experts steered us wrong. Terribly, terribly wrong.

How could such a thing happen? Aren’t the experts smart people? Don’t they know what they are talking about?

They’re smart people. The trouble is, all that they have learned about stock investing in the course of becoming experts is wrong. When the model used to develop all the ideas published in the textbooks is in error, all the textbooks are in error. The sad reality today is that the more a person studies the conventional wisdom on stock investing, the less he understands what really works.

Mark Twain once commented that it’s not what you don’t know that hurts you most, it’s what you think you know for certain that just isn’t so. That’s today’s investing expert. He thinks he knows it all because he’s memorized all the textbook answers. In reality, the average middle-class worker possessing a little bit of common sense is miles ahead of 90 percent of today’s “experts.”

That’s my secret. I’ve never taken any courses in investing. I’ve never managed a big mutual fund. I have no experience putting together financial plans for clients. I’m an investing genius!

In all seriousness, I really do believe that I know more about what works in the real world than 90 percent of the big names in the field. Common sense tells us that stocks cannot offer a strong long-term value proposition when they are selling at the prices that applied prior to the big price crash. The Efficient Market Theory tells us that prices don’t matter. I was never “smart” enough to fall for that one. I stuck with common sense. I lost nothing in the crash and have a lot more to invest in stocks today (when prices are again reasonable) as a result.

The experts can learn new things faster than I can. They have all sorts of tools available to them to keep up with developments in the field. They’re driving 90 miles per hour while I’m poking along at 25. Still, I possess an edge. I’m driving at a far slower speed but in the right direction. It makes a difference!

I hope you’ll consider opening yourself up to learning about some investing ideas not approved by the big names. My strong sense is that many of the experts would like to drop their reliance on the Efficient Market Theory and start giving advice rooted in common sense too. They need to see that there are lots of middle-class investors who will not look at them funny if they begin giving advice that is the opposite of what they have been putting forward for the past three decades.

We need to clear the decks and start over. This time, we need to put common sense at the center of the investing model we build. The experts need a little push to get started. Help them feel comfortable doing so and in the long term you will end up helping yourself too.

This is a Guest Post by Rob Bennett who writes the “A Rich Life” blog. He has recorded over 80 podcasts describing how to make the shift from Passive Investing to the new Rational Investing model for understanding how stocks work.

29 Responses to The More You Know About Investing, The Less You Know About Investing

  1. Cole,

    I am all for open discussion, so please elaborate.
    1) The first link is an article that Rob wrote. Do you agree or disagree?

    2) The second link seems to be to a forum which was last posted in 2005, where I was unable to find mention of Rob (I have thus taken down this link – I will put it back up if you explain what its purpose was).

    My Journey

  2. The second link seems to be to a forum which was last posted in 2005, where I was unable to find mention of Rob (I have thus taken down this link – I will put it back up if you explain what its purpose was).

    Hi, My Journey.

    My guess is that the link was to a doctored version of the SWR Research Group board (the board no longer exists) that was created without permission of the site owner by some abusive posters.

    I am the person who discovered the analytical errors in the Old School safe-withdrawal-rate (SWR) studies back in May 2002. These errors caused the numbers that most retirement planners use to help us plan our retirements to be wildly off the mark (the old studies fail to account for the effect of the valuation level that applies on the day the retirement begins — the historical stock-return data shows that this is the most important factor determining whether a retirement plan succeeds or not). Here is the URL for a New School retirement calculator (one that includes the effect of valuations) at my web site:

    http://www.passionsaving.com/retirement-calculator.html

    There was a fellow at a discussion board that I posted at who had authored one of the Old School SWR studies. He became very, very unhappy with me when I let people at the board know about the effect of valuations on the SWR numbers. He set up a discussion board with the sole purpose of organizing smear campaigns against me and any others who report accurate SWR numbers. He and his Goon Squad follow me and a few others around the internet and post this sort of junk.

    Here is the URL for an article at my site which sets forth an e-mail that I sent to my congressman (Rep. Frank Wolf) explaining the background of this matter and urging the adoption of legislation to protect those of us who post constructively on the internet from these sorts of tactics:

    http://www.passionsaving.com/internet-harassment.html

    There are hundreds of people who have posted constructively during the first seven years of The Great Safe Withdrawal Rate Debate at a number of different boards in the Retire Early and Indexing discussion-board communities. Our findings on the SWR topic led us over time to the exploration of many other investing questions. All of the investing materials at my site (over 100 articles, 4 unique calculators, and over 80 podcasts) are the work-product of this amazing learning experience.

    I’m trying to get the message out to more people about all that we have learned. So I am happy to answer questions from interested parties. I believe that middle-class investors are in great need of more realistic advice than most of what we have been hearing in recent years. I am trying to launch a national debate on the failings of the Passive Investing model for understanding how stock investing works.

    I know that this is a lot to take in all at once. I hope that explanation helps a bit without being overwhelming.

    Rob

  3. Mr Bennett makes some interesting protestations:

    “a doctored version”

    “SWR Research Group board (the board no longer exists)”

    “created without permission of the site owner”

    1. What got doctored? As far as I can tell it is a faithful reproduction of original posts and threads. Now, as the former admin there, YOU had sole authority to delete posts and threads, and did so with reckless abandon. For recovering those excised posts, I think there is no recourse, unless you kept local copies in your big black binders. The owner, who allowed you admin privileges made it clear at the outset that it was your playpen, so I would not expect that he kept anything himself.

    2. No longer exists? It appears to be archived, yes, but it certainly exists. It simply is not accepting new posts.

    3. Who is the site owner, if not the individual who runs it now? Your complaint is nonsensical.

  4. Damn it! I thought I was going to get a sensical debate about the actual post.

    Cole you clearly have a personal issue with our Guest Poster, I say this because your comments can be read with great disdain.

    If you have a comment about THIS point, I’d love to hear about it. But your arguments/discussion points do not raise a fruitful debate.

    If Rob was a dirtbag who knocked up a family member and didn’t call her back, stole your money, or robbed your grandma just say it! This passive aggressive garbage quoting a 2005 forum is just weird and not really my style.

    That being said I appreciate you as a reader and commenter…just try to keep it applicable.

  5. the second link was to a board run by Rob Bennett

    This is of course a false statement.

    I post to the board linked here. I do not run it.

    I have on numerous occasions asked that something be done about the abusive posting at that board. To no avail.

    The board is owned by John Greaney. There is a link to it from his web site (www.RetireEarlyHomePage.com), where he acknowledges that this is his board. Greaney is the author of one of the Old School SWR studies (you can view the study at this web site).

    Rob

  6. What got doctored?

    It’s clear from a two-minute examination that the board material has been doctored. It is not clear to what extent it has been doctored.

    Who is the site owner, if not the individual who runs it now?

    The site owner is the individual who founded the board and paid for its upkeep (he used the screen-name “ES”). This individual made me the administrator of the board. The response of the Goons was to destroy his entire site with abusive posting. So the board is no longer available in its non-doctored form. I am confident that the person who founded the site that was destroyed (NoFeeBoards.com) did not hand over ownership to the Goon poster presenting the doctored version today.

    Rob

  7. This passive aggressive garbage quoting a 2005 forum is just weird and not really my style.

    I like your style, Cole. A lot.

    That being said I appreciate you as a reader and commenter

    This part also impresses. A lot of the Goons are smart people (despite their many efforts to make it appear otherwise). A number of them are friends of mine from the days before I posted the accurate SWR numbers. This is why I post at the board linked to above. I have learned things from the Goons and for that I am grateful.

    We need site administrators that bring out the best in all of us. The way to do that is to follow common-sense site administration rules. That means protecting us (all of us, including the Goons themselves) from the ugly and nasty stuff. While also encouraging us to post constructively. That way we all learn together.

    The leader of the Goons told me a few weeks ago that he lost “well in excess of $1,000,000″ in the stock crash. That’s the cost to just one individual of the Campaign of Terror against the Retire Early and Indexing boards (he would not have lost this money had he permitted other community members to post their honest views and then learned more about the realities of stock investing as a result of what they said). And there were of course many thousands of others who lost large amounts.

    And the Efficient Market Theory proponents tells us that stock investing is a 100 percent rational endeavor. Um, right — sure it is!

    Rob

  8. I'm really sorry that your blog has been polluted this way. The answer to the question of Mr. Bennett's veracity is simple: google "Rob Bennett" "financial advisor".

    I hope you don't censor this. It seems to me that the least you can do is to allow your readers to educate themselves about people you have post here.

  9. "The archive is a faithful reproduction of what existed just prior to the board's shutdown. "

    Do you have a legal right to host the archives of this discussion board, Phoenix? As you know, the owner of that site permitted honest posting on safe withdrawal rates and his site was destroyed as his "punishment" for doing so. I think it is fair to say that it is extremely unlikely that he would pass along ownership to you.

    If you would commit theft of the archives of a discussion board, why should we believe that you would not doctor the contents of that discussion board?

    I mean, come on.

    Rob

  10. My Journey,

    I'm the so-called "goon" who archived the SWR board for posterity.

    I'm sorry you have had your blog hijacked by handing it over temporarily to Rob Bennett aka hocus aka hocus2004. It's a hard lesson that has been learned over and over by forum and blog administrators the last few years when Bennett is given an inch.

    He wrote above, "It's clear from a two-minute examination that the board material has been doctored. It is not clear to what extent it has been doctored." That is the sort of brazen lie that Bennett is capable of. The archive is a faithful reproduction of what existed just prior to the board's shutdown. Any and all doctoring was done by Bennett pre-shutdown, when he had administrative privileges over the board.

    I suggest very strongly that you read this message, Bennett's last message before the site owner shut him up. It's an excellent undoctored summary of Bennett's psychology provided by Bennett himself.

    Keep it in mind the next time you invite a guest post on your blog.

  11. It's clear from a two-minute examination that the board material has been doctored.

    Take two minutes. Point to something that has been doctored.

  12. I like your style, Cole. A lot.

    Thanks, Rob.

    Unfortunately, the feeling is most certainly NOT reciprocated. I dislike the type of trolling nonsense you have been up to for years. A lot.

  13. "I hope you don't censor this. It seems to me that the least you can do is to allow your readers to educate themselves about people you have post here."

    It is my strongly held belief that the abusive posts should be removed. We have seen in numerous communities that posters of intelligence and integrity are repulsed by the tactics employed by the Goon posters. We have always enjoyed far more enriching (in all senses of the word) discussions when sensible site administration policies were followed.

    The trash stuff adds precisely nothing. And it does a great deal of harm to all involved. It is a lose/lose/lose/lose/lose.

    Rob

  14. As MJTM requested, let’s get down to the original post. Rob (once again) claims the EMH has been discredited. First let’s get a quick reminder:

    Historical background

    The efficient-market hypothesis was first expressed by Louis Bachelier, a French mathematician, in his 1900 dissertation, “The Theory of Speculation”. His work was largely ignored until the 1950s; however beginning in the 30s scattered, independent work corroborated his thesis. A small number of studies indicated that US stock prices and related financial series followed a random walk model.[5] Research by Alfred Cowles in the ’30s and ’40s suggested that professional investors were in general unable to outperform the market.{Wikipedia)

    So, Rob, this can be reduced to it’s essential elements very simply:

    Please provide SPECIFIC evidence of one person who can consistently outperform the market, and then (bonus points) tell us how he does it.

  15. "Please provide SPECIFIC evidence of one person who can consistently outperform the market, and then (bonus points) tell us how he does it."

    There are many experts who say that it is not possible to beat the market. Cole is telling it straight re that one.

    There are also many experts who say that it IS possible to beat the market. Can you acknowledge that, Cole? If you could, I think it would help a lot. Can you say the words "There is a whole big bunch of smart people who agree with what Rob is saying, so people will just have to listen to both sides and decide for themselves."

    The idea that one cannot beat the market is an OPINION. It is NOT an established fact. You are persuaded and many others are persuaded. I am not persuaded and many others are not persuaded.

    To beat the market, you need to have an edge on the market, you need to know something that the market doesn't know.

    The Efficient Market THEORY says that this is not possible. But that's only an unproven theory. If the theory is false, then OF COURSE you can beat the market. You beat it by taking advantage of your edge, the thing you know that the market doesn't.

    At times of insanely high prices (prices were insanely high from 1995 through the first part of 2008), you could beat the market by knowing that the prices were insanely high and that thus your stock allocation should be low. You wouldn't have beaten the market immediately. But you would have beaten it in the long run.

    That's how it has worked from the first day. Those who have adjusted their stock allocations in response to big price changes have always been able to beat the market IN THE LONG TERM. I do not believe that it is possible to bear the market in the short term. I do not believe that short-term timing works. But it has ALWAYS been possible to beat the market in the long term,. Long-term timing has ALWAYS worked. It's not even possible for me to imagine a scenario in which this would no longer be so.

    I think we all would be a lot better off if we stopped talking about WHETHER it is possible to beat the market and instead focused our energies on helping as many people as possible learn what they need to learn to know HOW to beat the market. We need to get millions of people involved in that debate. The more people we get involved, the more we will all learn and the quicker we will be able to put this economic crisis behind us.

    I see no possible downside to permitting such discussions to go forward, not just here but all over the internet. Do you see a possible downside to permitting the discussions, Cole? If you do, could you tell us what you think it is?

    Rob

  16. I am not one to censor material. If you have read any of my political stuff (which I am sure no one commenting has) I am a libertarian at heart and truly believe that the market will get rid of garbage.

    Cole/Gole/Phoneix – I'll be happy to delete any further posts that dont' either explain your feelings about THIS POST, or provide information to the reading public about WHY you are not a fan of Rob.

    I don't care about this ridiculous forum fight dated 2005, STOP BRINGING IT UP please.

    • "I don't care about this ridiculous forum fight dated 2005, STOP BRINGING IT UP please"

      I am grateful for your comment, MJTM. I am certain that you speak for just about everyone listening in.

      However, I also think that it helps to explain why this always happens when these issues are discussed. I want to explain why "this ridiculous forum fight" never goes away (it has been going on at scores of boards and blogs for seven years now).

      The implications of the issue under dispute here are huge. The question is — Do valuations affect long-term returns? If they do (and they do), 90 percent of the investing advice that we have been hearing for 30 years now is wrong. It's not true that stocks are always best for the long run. It's not true that timing doesn't work. The studies that most financial planners use to help us plan our retirements get all the numbers wrong and are going to end up having caused millions of failed retirements.

      We are living in a twilight zone. The conventional investing ideas are rooted in academic research from the 1960s, 1970s and 1980s. The more recent research shows that these earlier studies are wrong. The "experts" have been afraid to tell us this (or perhaps even to admit it to themselves) because we were in the middle of a huge bull market that many credited to the old ideas. We now need to find the courage to correct all that we got wrong and to begin telling the accurate story.

      That means that thousands of people need to correct old studies, old calculators, old articles, old books. This is going to bring us to a great place in the end. But it's hard today for those who made mistakes (not deliberately, at least not in the beginning) to admit that they have caused so much human misery.

      I think you are right that the market will get rid of garbage eventually. The human suffering caused by the Passive Investing idea just grows and grows and there is going to come a time when people just will not be able to bear it anymore. For now, though, the "market" is dominated by those who have a vested interest in not letting word get out about what we have learned in recent years.

      The majority of people have always wanted to hear both sides of the story. I have been involved in this from the first day and I can tell you that with great certainty. But the group that wants to shut down any discussions of the flaws of Passive Investing is 50 times more intense than the 80 percent majority that is open to hearing both sides. How does the "market" deal with that reality?

      My take is that reasonable people need to enforce reasonable rules to keep people in line. We certainly should allow all points of view to be represented. I like to think that that is beyond any questioning. But harassment? Death threats (yes, this group has resorted to death threats on several occasions)?Board bannings? Boards burned to the ground because the majority expressed a desire to hear both sides of the story? I say "no" to that stuff.

      I say "no" because that stuff blocks the marketplace of ideas from functioning in the way you envision it functioning. The trash posting is not "speech." It is BEHAVIOR aimed at BLOCKING speech. Many people who would like to learn more are intimidated by the smear campaigns from asking the questions that they need to ask to learn. This stuff is anti-speech and we should not worry about doing what we need to do to protect our communities from it.

      Rob

  17. My question to Rob Bennett about his claims of death threats was removed. Why? Mr. Bennett was the one who mentioned it. Is Mr. Bennett above reproach and allowed to get a free pass when he makes these kind of crazy claims?

    • I don't care AT ALL about this piss poor obviously personal fued you people are having. I can't think of anything worse than having to censor (I DELETED THE COMMENT BECAUSE IT DOESN'T HAVE TO DO WITH ANYTHING) but I will block everyone on here if you can't talk about PERSONAL FINANCE OR explain IN A COHERENT manner why you disagree with the guest poster.

      Grow the F up people

  18. "I can't think of anything worse than having to censor (I DELETED THE COMMENT BECAUSE IT DOESN'T HAVE TO DO WITH ANYTHING) butI will block everyone on here if you can't talk about PERSONAL FINANCE OR explain IN A COHERENT manner why you disagree with the guest poster. "

    I believe you have hit precisely the right balance with this statement, MJTM. I am a journalist. There's no one on Planet Earth more opposed to censorship than I am. I know from personal experience that there is often more to be learned from those who disagree with us than from those who agree. So I think you are right to be extremely wary of the idea of cutting people off.

    But I also know from personal experience that there are times when people MUST be cut off so that the vast majority not pursuing personal agendas can engage in the civil and reasoned discussions that they want to engage in. I can tell you that the tactics employed by the Goons frighten many people. I have had blog owners tell me after I sent them guest blog entries that they think the entries are great but that they are too afraid of what will happen to them if they run them to go ahead and do so. Is that not a form of censorship?

    These issues are going to be with us for a long time. The Passive Investing model has failed both in theory and in practice. But there are lots and lots of people who gained fame and fortune promoting Passive Investing and who are not going to easily give up on it (and there are millions more who sincerely believe that Passive Investing works, to be sure). These unfortunate frictions will continue to evidence themselves for so long as that remains the case. The need for people to learn about the realities is too great for questioning of the dogmas not to continue and the number with a vested interested in defending the dogmas is too large for us to have realistic hopes of a quick resolution of the matter.

    I hope that we can stay in touch from time to time. I believe that the blogosphere can play a big role in helping us to recover from the economic crisis. The main problems today are emotional ones — people need to learn why they lost so much of their retirement money and what they need to do to be sure that it never happens again. There is no communications medium available to us today as well positioned for permitting an airing of the straight story as the personal finance blogosphere. So I hope that a number of us will be able to unite to do what needs to be done to give these topics a wider hearing.

    There's a huge interest among our readers in learning the realities of stock investing. I have seen this at every single place at which I have discussed these matters. But there is also a great confusion in people's minds today. People need to be able to ask questions to come to feel comfortable in their understanding of the new ideas. This stuff cannot be put forward on a hit-and-run basis. We need to present and then hang around to explain and to take people through things point by point.

    If at any time you have an interest in running additional guest blog entries on this topic, please let me know. I can generate an unlimited number of them. There are hundreds of investing topics that need to be reexamined in light of what we have learned in recent years. And i of course am especially happy when my ideas can be effectively challenged. I like to learn from all this work I do too and I learn the most when I am being effectively challenged. So if you ever develop an interest in offering criticisms of the ideas explored at my site, I think that would be a great thing for all concerned.

    Thanks much for hosting the guest blog entry and for your effective handling of the "issues" that arose as a result of this challenge to yesterday's conventional wisdom.

    Rob

  19. "it says the average individual can't exploit any supposed inefficiency in pricing, because all publicly available information is already factored in. "

    This is an accurate description of what the Efficient Market Theory posits.

    It is not true that all publicly available information is factored in. I have a calculator at my site that reports that the most likely 10-year return on stocks in January 2000 was a negative 1 percent. Was that information factored in?

    It was not. Had that information been factored in, people would have been selling stocks like crazy. The mass selling of stocks would have brought the price down, and there no longer would have been a problem.

    The very fact that extreme overvaluation exists shows us that the market is not efficient. In an efficient market, prices would self-regulate. In the market that exists, we were at three times fair value in January 2000. How efficient is that?

    There is a great irony in all this. I am the one arguing for things that would MAKE the market more efficient. I am saying that the "experts" should have been warning us about the dangers of overvaluation in 2000. Had they done that, the market would have functioned far more efficiently than it did in fact function. The experts told us to ignore price, which meant that most of us were investing blindly, which meant that it was not possible for the market to function efficiently. We need accurate information to be able to invest in such a way as to make the market efficient.

    Why do the experts encourage our worst emotional inclinations? Dallas Morning News Columnist Scott Burns told us in a column published in June 2005. He said that the reason why the media has not reported widely on the safe-withdrawal-rate findings of the Retire Early and Indexing communities is that "it is information most people don't want to hear." The "experts" see it as their job to tell us what we want to hear, not what we need to hear.

    It's not possible for the market to achieve efficiency so long as that is so. Efficiency requires access to accurate information. Most of us believe that the "experts" are shooting straight. Scott is telling us that they are not. They see it as their job to persuade us to buy overpriced stocks, not to invest in such a way as to achieve financial freedom as early in life as possible. Is that not what Scott is saying in the words quoted above?

    The Goon phenomenon plays a role here too. Goon posters make life extremely unpleasant for anyone who reports accurately what the historical data says about safe withdrawal rates or about Passive Investing in general. And most of us tolerate the Goon behavior for so long as stocks are insanely overpriced and we feel a great desire to hear soothing words about how it is all going to turn out different this time than how it has ever turned out before.

    To a large extent, we get the investing advice that we demand. We do not demand accuracy. We demand happy talk. And that is what we get. We destroy ourselves by insisting that the "experts" give us happy talk re what to do with our retirement money.

    Can it change? Can we make the market more efficient than it is today?

    Yes. But it means being open to learning about the reality that investing is primarily an emotional endeavor and not primarily an intellectual one. The Efficient Market Theory is popular because it flatters us. It suggests that we are trying to figure out how to invest most effectively when really we are trying to justify NOT investing effectively (our emotions cause us to feel an affinity for Get Rich Quick schemes like Passive Investing).

    We need to make some changes. The first step is acknowledging that flattery posing as scientific investing advice hurts us in the end. We need to know what the numbers really say, both on retirement and on all other questions. We need to develop the emotional maturity to devote some attention to the many studies issued during the past 30 years that show that valuations affect long-term returns and that the conventional investing advice is mostly dangerous nonsense.

    Rob

  20. Self-proclaimed Financial Advisor and Career Coach Rob Bennett claims: "The Efficient Market Theory tells us that prices don’t matter."

    *** REMOVED BECAUSE OF BAD EMAIL ADDY***

    Best of luck with getting anything of value out of this "author."

  21. "I will organize some quotations from THIS POST and ITS COMMENTS made by THIS POSTER and only THIS POSTER at THIS SITE into categories"

    What we see here is emotion.

    It's incredible how much effort Phoenix has put into just this one post. Why? He cares.

    That's undeniable. The question is — cares about what? What he cares about is defending the Passive Investing model of how stock investing works. He cares about this intensely.

    The Passive Investing model does not stand up to scrutiny. The evidence that this is so is overwhelming. It's available to anyone who wants to check it out by doing a few Google searches. But many find this hard to believe. They say — there are so many smart people in the investing field, surely if the entire model we use to learn what to do were wrong, those people would fix it.

    That's what you would intuitively think. What you would be missing is the reality that these smart people are HUMANS. Their take on all things investing is influenced by the same human emotions that influence all human thinking on all topics. Do smart people never become alcoholics? Do smart people never get into bad relationships? Do smart people never bet over their heads at Atlantic City?

    We do these things all the time. But for some crazy reason large numbers of us have come to believe that, when the subject turns to investing, all of our human emotional weaknesses disappear. It doesn't work like that.

    Do you want to know why we are living through the greatest economic crisis since the Great Depression? Because a lot of smart people who we all turn to to let us know how to invest our retirement money have their pride caught up in the Passive Investing model. The academic research showing that valuations effect long-term returns dates back nearly 30 years. If valuations affect long-term returns, the idea of staying at the same stock allocation regardless of the valuation level that applies makes precisely zero sense. But these people cannot bear the thought of acknowledging that they got some very, very important things very, very wrong and caused great human misery by doing so.

    Phoenix is one of those people. He's told himself that Passive Investing works. He's told his friends. He's told his co-workers. He's told his neighbors. And he cannot bear now to admit that he was wrong. That's the problem in a nutshell. That's why we see the sorts of words that he has put forward here appear on numerous blogs and discussion boards.

    In other circumstances, Phoenix and me would be friends. The leader of the smear campaigns is a fellow who praised me to the skies in the days before I posted about the errors in the Old School retirement studies. He liked everything about me. But on the day I did that, he began hating everything about me with an intense passion.

    And that's not all. I asked this fellow a few weeks back how much he lost in the stock crash. He said that the number is "well in excess of $1 million." The guy liked me before, can you imagine how much he would have liked me after I saved him from losing well in excess of $1 million?

    The reality of course is that my efforts didn't take. He didn't listen. So he remains mad at me. Is he really mad at me? Or is he really mad at himself and venting whenever my name comes up because he doesn't want to recognize what he did to himself?

    It's all about emotion. All of the "experts" are playing intellectual word games and all that matters is the emotion that drives them to play the word games. We get out of the economic crisis when we acknowledge that. Even the most ardent defender of Passive Investing possesses common sense. And our common sense tells us that prices must matter. So even the most ardent defender knows on some level of consciousness that this stuff doesn't add up. And it drives him nutty.

    Sooner or later, we all have to acknowledge what we did to ourselves. When we do, there's 30 years of academic research available to us telling us the realities of stock investing. The realities are known. It's just a question of us being willing to check them out. It will happen when the pain of not doing so becomes even greater than the pain we experience when we try to tell the truth to ourselves about the mistakes we have made.

    I can't control when people reach the point where they feel that they have suffered enough pain. What I do is to put forward whatever words I can to help them get to that point. The reassurance that I can offer is to say that there is a far more effective way to invest available to all of us when we get to that point. All of the pain is unnecessary. We brought it all on ourselves.

    The good news is that we also are responsible for all the good stuff that follows when we accept the need to move to the new model. The humans messed up big time. The humans (I certainly don't mean just me — there have been thousands) also did some wonderful work. Both things are so. We're screw-ups. And we're heroes. It's been that way since time began. It's the human condition.

    Rob

  22. Real email address and I'm taking you at your word: "either explain your feelings about THIS POST, or provide information to the reading public about WHY you are not a fan of Rob." I won't bother with the second part because you're not interested in history but, if you allow me, I will organize some quotations from THIS POST and ITS COMMENTS made by THIS POSTER and only THIS POSTER at THIS SITE into categories, i.e it's rebuttal. If you prefer to leave Rob unrebutted to maintain the appearance that this particular guest poster offers something worthwhile, then censor this comment. If you want me to elaborate, then I will oblige. For now, rather than risk my comment being censored, I leave you with just Rob's words.

    Flat lies
    1. The Efficient Market Theory tells us that prices don’t matter.
    2. a doctored version of the SWR Research Group board
    3. abusive posters
    4. It's clear from a two-minute examination that the board material has been doctored. It is not clear to what extent it has been doctored.
    5. The response of the Goons was to destroy his entire site with abusive posting.
    6. So the board is no longer available in its non-doctored form.
    7. his site was destroyed as his "punishment" for doing so.
    8. It's not even possible for me to imagine a scenario in which this would no longer be so.
    9. I am a journalist.
    10. There's no one on Planet Earth more opposed to censorship than I am.
    11. I know from personal experience that there is often more to be learned from those who disagree with us than from those who agree.
    12. And i of course am especially happy when my ideas can be effectively challenged.
    13. I like to learn from all this work I do too and I learn the most when I am being effectively challenged.

    Misleading because context is omitted
    1. the old studies fail to account for the effect of the valuation level that applies on the day the retirement begins
    2. I have a calculator at my site that reports that the most likely 10-year return on stocks in January 2000 was a negative 1 percent. Was that information factored in?

    Assertions unsupported by facts, arguments, or citations
    1. There is a mountain of evidence today showing that stocks are sometimes the worst place to put your money for the long run, that some forms of timing not only work but are required for those who want to have a realistic hope of long-term success, that it’s not your stock allocation you want to hold to but your risk level and that doing that requires that you change your stock allocation in response to big price changes.
    2. Common sense tells us that stocks cannot offer a strong long-term value proposition when they are selling at the prices that applied prior to the big price crash.
    3. the historical stock-return data shows that [the valuation level] is the most important factor determining whether a retirement plan succeeds or not
    4. created without permission of the site owner
    5. extremely unlikely that he would pass along ownership to you.
    6. commit theft of the archives of a discussion board
    7. At times of insanely high prices (prices were insanely high from 1995 through the first part of 2008), you could beat the market by knowing that the prices were insanely high and that thus your stock allocation should be low. You wouldn't have beaten the market immediately. But you would have beaten it in the long run.
    8. Those who have adjusted their stock allocations in response to big price changes have always been able to beat the market IN THE LONG TERM.
    9. Long-term timing has ALWAYS worked.
    10. we all would be a lot better off if we … focused our energies on helping as many people as possible learn what they need to learn to know HOW to beat the market.
    11. The Passive Investing model has failed both in theory and in practice.
    12. the blogosphere can play a big role in helping us to recover from the economic crisis.
    13. The very fact that extreme overvaluation exists shows us that the market is not efficient.
    14. We do not demand accuracy.
    15. We demand happy talk.

  23. Geez…what a useless set of comments by Bennett.

    That's it – another website deleted from my bookmarks. Thanks, Bennett

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