The Financial Freedom Blog – November 2007 Home Page : The Financial Freedom Blog : November 2007

November 1, 2007 08:39 Scott Burns: “The Whole Idea That There Is a New School of SWRs Reeks of Personal Aggrandizement”

I promised in last Thursday’s blog (Scott Burns Distances Himself from the New School SWR Approach) to file a report today on his e-mail to me dated October 22, 2007.

This response was six paragraphs long.

Scott justified his banning of discussions of the New School approach to safe withdrawal rate (SWR) analysis from his discussion board on grounds that “your approach to communications seems to provoke” the abusive tactics engaged in by Greaney defenders. He described the contributions of the Goons as “useless name calling.”

The Dallas Morning News columnist said that he appreciated my “efforts to add another level to the safe withdrawal rate discussion.” But he added that: “You go about it in a manner that is catastrophically unproductive by adding missionary zeal that inflates your importance and demeans others. The whole idea that there is a new school of Safe Withdrawal Rates reeks of personal aggrandizement.”

The e-mail pointed to research done by Stephen Leuthold more than 25 years ago that showed the connection between starting-point valuation levels and the long-term returns provided by stocks. Scott expressed agreement with the core principle of the New School approach — that the valuation level that applies at the start date of a retirement affects its survival prospects. He noted that it is not possible to predict long-term returns with precision. And he observed that it is possible that there has been “a secular change in corporate return on equity in the last three decades.”

Scott concluded that: “The bottom line is that the foundation for your new school is planted on very soft and muddy ground. It’s an idea that deserves notation, not messianic conversions.”

I sent the following response early the next morning (due to the length of the response, I will not use quote marks — my response continues until the last two paragraphs of this blog entry):


I am grateful for your response.

Is it okay with you if I set forth the text of your e-mail in my blog or in an article at my site?

John Greaney (author of the Old School study posted at has a long history as a highly abusive poster. There is no question but that, if you permit either Greaney or those who post in defense of him to participate at your forum, the forum will be trashed. The appropriate response is to remove abusive posts as soon as they are brought to your attention. That permits the many investors who would like to be able to participate in reasoned discussion of the New School findings to engage in civil and reasoned discussion. What’s the potential downside?

Here is a link to an article at my site quoting from a number of posts from the early days of the Motley Fool discussions, at which numerous community members expressed excitement at the learning experience that was provided when I first raised the idea of discussing SWRs in a realistic way:

Those people (and tens of thousands more like them) have been denied a great learning experience because one individual who got an important number wrong in a study posted to his web site in 1996 has not been able to bring himself to acknowledge the error. Do you want to be part of that? When you ban honest discussion of the SWR topic at your forum, you become part of it. What you should be banning is abusive posting, not honest discussion of important issues raised in your own columns.

To say that I have a “missionary zeal” re the SWR topic is to vastly overstate things. I learned (from reading John Bogle’s book) of the flaws in the Old School studies back in the mid-1990s. I began posting at the Motley Fool board in May 1999, I did not put up the kickoff post to The Great Safe Withdrawal Rate Debate until May 13, 2002. Does that sound like missionary zeal to you?

A more accurate way to state this would be to say that I continue to explore the SWR matter because of the “missionary zeal” that it provokes in others. The normal and healthy response to finding that studies that people use to plan their retirements get an important number wrong is to seek corrections of the studies. Is that not what we would see if these studies related to the risks of smoking or the risks of playing with dangerous toys? The “missionary zeal” here is all on the other side.

I am a simple man with simple dreams. I made a lot of friends as the result of founding the Retire Early Community of discussion boards (Greaney founded the first board, but I was the one who founded the community by posting on the Passion Saving approach to money management and thereby transforming that board community from a small group of Greaney supporters into what I think can fairly be described as the most exciting board in the history of the Motley Fool site). Thousands of these friends of mine were taken in by the claims of these dangerous (but surface-plausible) studies. I tried to help them out. They thanked me. And a small band of highly abusive posters then burned six boards to the ground in an effort to stop honest and informed discussion of this topic. If that is not “missionary zeal,” what the heck is?

All of the negative emotion re this issue is on one side. I have spoken with thousands and thousands of people on this matter. I do not recall a single instance of someone who favored honest discussion making use of abusive posts to intimidate or deceive. I have seen this tens of thousands of times from people seeking to “defend” the Old School studies. Does this not tell you something about the confidence that these people feel in the rationality of their “defense”?

There has never in the history of the internet been a debate on a personal finance question that has generated even a fraction of the number of posts that have been directed to discussion of the SWR topic. The number is in the hundreds of thousands. People care intensely about this. The unfortunate reality is that the intensity is far, far, far higher on the side defending the discredited studies than it is on the side seeking to learn more about the New School approach. There are many who would like to learn, however. They are not willing to sort through hundreds of trash posts to do so. But they would be pleased to make constructive contributions if a forum were made available at which they were protected from the sorts of individuals who have posted in defense of Greaney.

I have never demeaned the contributions of others, Scott. I have stated on numerous occasions that the breakthrough findings achieved by the Retire Early community were in every possible way a group effort. We have seen hundreds of fine people taking time out of their day to help us out, and in the face of bitter opposition on the part of the Greaney defenders. John Walter Russell has been working on this 50 hours per week for over five years and has been paid not one thin dime! I think it would be fair for me to describe him as the most generous-spirited individual I have ever encountered. My role was to get the ball rolling and to keep it rolling by asking questions about our findings at each stage of our development of the issues. I have put a lot of time into this and I certainly think that it would be fair to describe me as the leader of the New School. But by no means do I think that it would be fair to suggest that I have been doing this important work alone. This has been a group effort from the first day.

You are the one who coined the phrase “New School,” Scott! That phrase comes from your column of July 2005! When you mock it, you are mocking your own coinage!

Ever since publication of that column, I have considered you a member of the New School. I have my doubts today (because of the content of your recent column, your recent e-mails, and your defense of the Old School number as “a good rule of thumb”) as to whether it is still appropriate to describe you as a member of the New School. If you do not want to be so described, please just let me know and I will refrain from doing so. I am inclined to refrain from doing so (at least not without noting caveats) at this point in any event.

I think it would be fair to say that it is impossible for a reasonable person to determine on what side of this issue you stand, Scott. Your July 2005 column described work showing that the Old School numbers were off by up to two full percentage points. You wouldn’t have published the column if you did not think that that work had value. So at the very minimum you were saying that there are grave doubts today as to the safety of the Old School numbers. That puts you in the New School!

Today you are saying that the Old School studies provide “a good rule of thumb.” Huh? Studies that people use to plan their retirements get the number wrong by up to two full percentage points and yet these studies provide a good rule of thumb? This is nonsense gibberish of the worst sort, Scott. These are dangerous, dangerous studies. The fact that somebody as smart and as well-informed as you was taken in by them at an earlier time points out the danger. Studies that cause people seeking to put together safe retirement plans to instead put forward high-risk retirement plans are dangerous studies. No responsible person who is informed of the grave flaws in the methodology of these studies should be linking to them or defending them in any way, shape or form. We need to warn people about these studies, not to encourage them to make use of them! Do you see?

You say: “Had one retired in 1996 or 1997, the subsequent decline would have been far less damaging to a retirement as retiring in 1999 or 2000.” That’s so. It’s also irrelevant to the topic we are discussing. We are discussing whether the Old School studies accurately report the withdrawal rate that is safe. They do not. No one knew in 1996 that the price drop would not begin until 2000. A 4 percent withdrawal was a high-risk withdrawal for a retirement beginning in 1996. The Old School studies got the number wrong. It may be that those retirements will survive. It won’t be because they were safe. It will be because they were lucky. There’s a difference.

It is no defense of the discredited SWR studies to say that some of the retirements constructed pursuant to their claims will survive. You could say that of retirements based on hopes of lottery tickets paying off. No sane person would say that hoping for a lottery ticket to pay off is a safe way to finance a retirement and no sane person should be saying that hoping on an unsafe withdrawal rate not to cause a retirement to fail is a safe way to finance a retirement. The question you should be asking yourself is — Do these studies report the SWR accurately or do they not?

You acknowledge that: “High starting P/Es tend to reduce future returns, and, thereby, portfolio survival rates.” Precisely so. The Old School studies include no adjustment for the valuation level that applies on the retirement start-date. Thus, the Old School studies get the SWR number wrong. The Old School studies will likely cause millions of busted retirements in days to come, in the event that stocks perform in the future anything at all as they always have in the past.

You say: “What you haven’t incorporated into your thinking is that the spreads on future returns from any given P/E level are very wide.” Why do you say this, Scott? Have you looked at The Stock-Return Predictor, a calculator available at my web site?

The calculator reports that the most likely annualized real return for the S&P over the next 10 years is 0.76. The best possible return (if stocks perform in the future as they have in the past) is 6.76. The worst possible return (the same caveat applies) is a negative 5.24. Is that not a pretty big spread? I do not know where you got the idea that I believe that the spreads on future returns from any given P/E level are not wide. I think it would be fair to characterize this as a strange claim for you to be putting forward. I can assure you there is no basis to it.

This reality has no bearing on the calculation of the safe withdrawal rate, Scott. The SWR is by definition the number that works in a worst-case scenario. The SWR is not a number telling us what might work, if we get lucky. It is a number telling us what will work, assuming only that stocks perform in the future no worse than they have in the past.

I don’t mean to be insulting here, Scott, but I feel that I need to point out that it is your job to understand this sort of thing. Do you understand it? Are you just pretending not to understand it? Is there something about this issue and the reaction of some to honest reporting on it that causes you to not want to let into your consideration of it knowledge that in other circumstances you would be happy to make use of? I do not know the answer to these questions. I am baffled by some of the words you have put forward.

If you “get it” that valuations affect long-term returns, then you should “get it” that a methodology that makes no adjustments for starting-point valuations must report the number inaccurately. Why do you twist yourself into logic pretzels in an effort to avoid the obvious realities that apply here? Again, I mean no insult, I am entirely sincere in expressing a desire that you reflect on these mysteries. If we were able to deal with that question in an emotionally healthy way, I believe that we could make a lot more progress in our back-and-forth in a lot less time. All of my words will not convince you if you do not want to be convinced. You should be asking yourself why you put up so much resistance to being convinced of things that are so obviously so.

You are viewed as a leader in the SWR field, Scott. You pointed out that Peter Lynch got the number wrong at an earlier time. The errors in the Old School studies are every bit as grave as the errors made by Lynch. We need you to come forward with clear and plain and simple and understandable words warning people of the Old School studies and condemning efforts to block honest discussion of their flaws. Your actions could make a big difference. I think it is fair to say that this is the most important topic that you have ever addressed in your time as a journalist. You have it in your power to save millions of retirements. The research work is completed. All that we need at this point is for a well-respected journalist to come forward with clear and plain and simple and understandable (no word games!) words letting people know the obvious realities. That would make a big, big, big difference, in my estimation.

You say: “The algebra of corporate returns…” blah, blah, blah, blee, blee, blee. No one cares about algebra, Scott. That sort of talk is for insiders or for a talk to a convention of academics in the investing field. I write for real live people who have real live concerns as to whether their real live retirements are safe in the real live world or not. You do too. Please try to keep those people and their needs in mind when addressing this topic. Those peoples’ retirements are in grave danger as a result of the demonstrably false claims of the Old School studies. That’s the bottom line. I implore you to make that your focus in your consideration of how to proceed re this issue.

You say “I don’t know” how things will turn out for today’s retirees. Precisely so. If you don’t know how things will turn out, you know that the Old School studies get the number wrong. Uncertainty is not safety. The full reality is that we do not even know that the New School study numbers will work out. It is entirely possible that stocks will perform in the future worse than they ever have in the past. The difference is that the New School studies do what they purport to do; they report what will work in the event that stocks perform in the future as they have in the past. The Old School studies do not do this. The Old School studies are not science, they are science fiction (they assume an imaginary world in which starting-point valuations have zero effect on long-term returns).

You say: “Leuthold himself nearly drowned in that river in the late ’90s because the averages told him the market was overpriced around 96 or 97 .” Leuthold was right, Scott. The market was wildly overpriced in 1996 and 1997, God bless him! I wish that we had had more people pointing out at the time the dangers of stocks for long-term investors. The tone of your comment here suggests criticism of Leuthold. If you are being critical of the guy for getting it right when so many others were getting it wrong, then all I can say is that we have a serious disconnect re this one. Is it not the goal to get it right? It seems to me that we should be praising Leuthold and others like him rather than finding fault with them. If a greater number had listened to Leuthold when he made the statements you refer to, we wouldn’t be in the mess we are in today, would we?

Your added comment that Leuthold made these observations “years before the actual peak” is embarrassing to read. Do you think he has a crystal ball? Again, I mean no insult and I am no fan of sarcasm. But this is very basic stuff, Scott, stuff that I am confident you understand better than you are pretending to understand it in some of the words you have put forward here. Leuthold does not see into the future. He reported that stocks were wildly overpriced and therefore dangerous for the long-term investor at a time when stocks were indeed wildly overpriced and therefore dangerous for the long-term investor. He did his job — good for him! I only wish that we had a lot more like him protecting middle-class investors from the Efficient Market Theory nonsense that has done financial harm to so many middle-class investors in the days since we hit the peak in 2000. Leothold did not pick the day and time because it is not possible to pick the day and time. He gave accurate and informed and reasonable advice when lots of others were failing to do so. That’s the job!

You say: “The algebra of corporate returns says that a higher ROE would allow both higher P/Es and higher stock returns, thereby increasing portfolio survival at higher P/Es from the levels that prevailed in the past.” There’s no harm and probably some good done from engaging in such speculation, Scott. Such speculation has no place in a SWR study, however. The root assumption of SWR research is that stocks are likely to perform in the future at least somewhat as they always have in the past. Assumptions that it is all going to turn out different this time are not a foundation for safe retirements. I have no objection to any investor putting together his retirement plan based on such an assumption. You puts down your money and you takes your chances. I have a big objection to the idea of such an assumption being used to justify putting forward research that purports to tell us what withdrawal rate is safe according to the historical data but which in reality does no such thing. Yuck!

You say: “The foundation for your “new school” is planted on very soft and muddy ground.” You are entitled to your opinion, Scott. I would be grateful if you would let me know of any arguments that you know of that can be put forward in support of this assertion. Anyone who reports to me any holes in the New School case is doing me a huge favor by bringing them to my attention. These ideas have been debated in the court of public opinion for over five years now. Not one of the defenders of the Old School studies has been able to put forward a single rational argument in support of their case over that time. The bans on honest posing on the SWR topic that have been imposed at numerous discussion boards (including your own!) speak for themselves. If there were a rational case that could be made in defense of the Old School studies, why would the authors of those studies be so aggressive in seeking bans on honest discussion of this topic?

You say: “It’s an idea that deserves notation, not messianic conversion.” The Retire Early Community’s findings on SWRs have led us to a lot of interesting places in recent years, Scott. The Retirement Risk Evaluator is fruit of The Great Safe Withdrawal Rate Debate. The Stock-Return Predictor is fruit of The Great Safe Withdrawal Rate Debate. The Investor’s Scenario Surfer is fruit of The Great Safe Withdrawal Rate Debate. John Walter Russell’s site ( has over 500 articles of original research that is the fruit of The Great Safe Withdrawal Rate Debate. My site ( has scores of articles on investing that are the fruit of The Great Safe Withdrawal Rate Debate. I am working on a book (Investing for Humans: How to Get What Works on Paper to Work in Real Life) that is fruit of The Great Safe Withdrawal Rate Debate. There have been thousands of threads setting forth tens of thousands of investing insights that are fruit of The Great Safe Withdrawal Rate Debate. I think it is safe to say that our community’s discussions of the SWR matter have already generated work that counts for more than a “notation” to the investing literature. I also think it is safe to say that we are today in the early innings of our exploration of the issues that have been brought to the surface as the result of our efforts of the past five years.

I detect hostility in a good number of the words that you have put forward , Scott. I respect your many contributions. I certainly do not question your intelligence. On this very issue, you clearly “get it” to an extent that few others do. All that said, I detect hostility. I have a good bit of experience in discussion of the SWR matter and I do not believe that I am imagining things. I am detecting hostility because there is some measure of hostility present in you re the work that I have done bringing the flaws of the Old School SWR studies to light.

Investing is primarily an emotional endeavor. It is only in a secondary sense a rational endeavor. This is our most important finding of all. You feel emotion over this issue, Scott. You shouldn’t be feeling emotion, according to the Efficient Market Theory. According to the dominant theory of how stock investing works, we are all robots who make rational investing decisions that cause the markets to work efficiently. This is of course nonsense. Your own words in the e-mail below tell the story of how emotions affect our understanding of how investing works.

This is the biggest story of your lifetime, Scott. I have studied this matter in great depth and I can tell you that it affects lots of people in lots of different ways. It is a big, big story. Part of it is the millions of busted retirements that we will see if people are not warned of the dangers of using these studies to plan their retirements. But even that is not the most important angle to the story. The most important angle is the emotional angle. If a leading journalist in the field, one who has a history of speaking as an expert on the SWR topic, is not able to work through these questions rationally, who is?

All humans have emotions. All humans have dark sides. All humans must struggle at times to face the truth and to tell the truth. Yes, that includes me. I held back on reporting to my friends what I knew about safe withdrawal rates because I was afraid of the attacks that would be made on me as a consequence of my reporting accurately what the historical data says. I was wrong to hold back. I learned my lesson. I struggle today to tell it as plain and real and true as I possibly can, knowing all the time that I am human too and that I too am flawed and therefore at times file imperfect reports.

The story is important, you are important, and the people you write for are important. If you have additional questions or comments now or at any later time, my offer to do everything in my power to bring you to a better understanding of the SWR topic (I don’t refer here only to an understanding of the academic research, I refer also to an understanding of the human suffering that results from studies that put forward demonstrably false claims for use in planning retirements — the latter is the more important part of the story, in my assessment) stands. Please just ask when there is something that you think I might be able to do.

The goal is to “Save the Retirements!” That’s not a joke to me. I put the idea forward in a somewhat lighthearted way because I don’t think that excessive heaviness serves any of us. But I am entirely serious in stating that that is my goal. Numbers are a big part of the SWR story. To me, though, this is not at heart a numbers story, it is a people story. This is a story of people hurting people and of other people trying to help people (I don’t mean just me, there are hundreds of Retire Early Community members who have taken time out of their day to put forward constructive contributions).

My intent is to post these words at my blog and possibly later as an article at my web site. My preference is to post your words as well so that people are able to understand the context in which I put forward my words. If you do not give me permission to post the words of your e-mail, I will not do so. However, I will post the words of my e-mail, which of course include a few quotes of your words. If there is any particular reason why you do not want one of the quotes reported, please let me know and I will make an effort to find a way to report the thought I was expressing in that section of my e-mail without quoting your words in that case.

Again, thanks for participating in some back-and-forth, Scott. I continue to have hopes that we will bring you around in time. I no longer view it as appropriate to cite you as a “supporter” (the New School disdains word games, and it is the ultimate word game to characterize the Old School’s 4 percent number as “a good rule of thumb”). But I also believe that you have advanced the ball on this issue in several significant ways. I believe that in time you will come to see that the Old School studies are indefensible. I see it as my job to do whatever can be done to speed up the day when that happens.

Please respond if you have any further thoughts or concerns or questions. If you do not respond, please know that you have my best wishes despite our differences on the SWR topic. I will send e-mails from time to time to let you know of significant developments but I will make an effort not to do so with any great frequency.

Take care, my old friend.


Later that day Scott sent me the following 10-word response:

“Sadly, your response is exactly what I wrote you about.” More on This Topic

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November 2, 2007 17:22 Staying Married Just to Be Different

I’ve added an article to the “The Self-Directed Life” section of the site entitled Staying Married Just to Be Different.

Juicy Excerpt: My wife and I have very different personalities. This makes for a great marriage when things are going well because she is strong in the areas where I am weak and I am strong in the areas where she is weak. However, there are times when it causes communication problems. There are times when I just do not make any sense! Well, the reality is that at times she just does not make any sense, but I am bending over backwards to be diplomatic here.

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November 5, 2007 15:15 What Do I Owe You?

1) The Airport Drive — The friend who drove you to the airport is not expecting any particular “payment.” This is an act of friendship and it is an insult to suggest that there be direct compensation for the favor. It is the rules of friendship that apply here. What you should do is stay alert for an opportunity to do something for the friend down the road a bit (perhaps you could help carry boxes on moving day). The payment does not have to be “equal in value” to the favor. These things are not precisely measured under friendship rules. The important thing is that you offer without being asked and that you don’t expect compensation either (although you will of course get it somewhere down the road a bit).

2) The Sister Babysitter — More frankness is called for in maintaining a healthy relationship with a sibling. In this relationship, there is much more giving going on (so there is a need to mention the inevitable problems that come up) and there is enough history to support a better understanding of the realities. You can say “no” to the babysitting assignment so long as you give a reason that makes sense and is not offensive. If you simply do not deal well with children, you can give an across-the-board “no” (but this has to be true — your sister will obviously know if it is not). If this is a busy time for you, you can say “this is a busy time, but I’d be happy to babysit sometime in the future.” The only time asking for money would be acceptable is if you really were low on funds and if you were asked to babysit regularly.

3) The Co-Worker Lender — With a co-worker, you have to repay the debt. The best solution here is to pay cash (the insult that applies with a non-work friend does not apply here). If the co-worker refuses the payment, she is telling you that she sees the relationship as rising to the level of non-work friendship. In that case, the rules for Scenario One apply. You pay back in a less defined but more generous way. If you are not comfortable taking this friendship to a higher level, you could offer payback by bringing back something for her when you go on vacation and thereby “evening the score.”
More on This Topic

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November 6, 2007 11:26 Learning from Mistakes — I Never Should Have Bought that Leo Sayer Album

I’ve added an article to the “The Self-Directed Life” section of the site entitled Learning from Mistakes — I Never Should Have Bought That Leo Sayer Album.

Juicy Excerpt: I was wrong to buy that Leo Sayer album. I was wrong to leave the Church for so many years. I was wrong to stay single for so many years. I was wrong to be afraid to have kids. I was wrong to waste so much time following politics. I was wrong to spend so much time reading newspapers. I was wrong not to exercise regularly for a time. I was wrong to go so many years without even giving thought to writing down a Life Plan. I was wrong to take dumb risks, like I did that time I drove a car after attending a party to celebrate my graduation from law school. I was wrong not to work up the courage earlier in life to take some risky career moves that stood a reasonable chance of generating a big payoff. I was wrong not to visit my brother more often when we lived so close together that it was easy to do so. I was wrong not to recognize earlier signs of Alzheimer’s in my father in the years before he died. I was wrong to read so many magazine articles, thereby limiting the time that I had to devote to reading books. I was wrong to believe the Phillies of the late 1960s when they claimed each Spring that they had some rookies coming up who were going to turn the team around.

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November 7, 2007 09:12 The Case Against Valuation-Informed Indexing

I’ve added an article to the “Valuation-Informed Indexing” section of the site entitled The Case Against Valuation-Informed Indexing.

Juicy Excerpt: It truly does seem that someone other than me should have come forward with these ideas a long, long time ago. From one way of looking at things, a good number did so. For example, Benjamin Graham, author of Security Analysis, put forward similar ideas decades ago. So perhaps there really is nothing new under the sun. My view is that the popularity enjoyed by the Efficient Market Theory during the wild bull of the 1980s and 1990s caused most experts to forget the essentials of common-sense investing for the exceedingly strange stretch of stock-market history that we happen to be living through today.

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November 8, 2007 11:23 You Can and Must Beat the Market

I’ve added an article to the “Scenario Surfer” section of the site entitled You Can and Must Beat the Market.

Juicy Excerpt: Investors are often described as being greedy and out to make a killing in the market. I don’t see it. Most investors I have spoken with (I have spoken with tens of thousands on discussion boards) are intimidated by stock investing. The last thing on their minds is making a killing. Their hope is that they will manage to do okay, to at least come close enough to matching market returns to be able to finance a decent middle-class retirement.

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November 9, 2007 18:17 20 Dangerous Money Myths — They Think We’re Stupid!

I’ve added an article to the “Start Me Up” section of the site entitled 20 Dangerous Money Myths — They Think We’re Stupid!

Juicy Excerpt: Banks write mortgages to make money. They charge an interest rate high enough to earn a profit after paying all their expenses. You are incurring a cost when you take on a mortgage. It’s often a cost that is worth taking on because of the benefits of having a mortgage. But it is a mistake to think that a mortgage is cost-free or that there is not a benefit associated with paying off a mortgage.

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November 13, 2007 08:18 The Problem with/for Today’s College Grads

Reasons Why It Is Hard for Today’s College Graduate to Establish Himself or Herself on a Career Track:

1) Jobs are more specialized today and so it is harder for a college graduate with a general education to find the first step on an appealing career path;

2) Jobs have changed so much that many young people are not able to tap into valuable information on how to get a good job by talking to their parents or other relatives, who entered a job market that followed very different rules;

3) Both opportunities and downside risk are greater than they have been in earlier eras. There have always been some college graduates who became paralyzed by the awesomeness of the choice being made when taking a first job. Today the potential for being paralyzed is greater than before;

4) There are fewer required courses in college today. That means that some graduates have not had as wide exposure to the job possibilities open to them; and

5) There is more stigma attached to taking a “menial” job today. The media encourages a success mentality. The menial tasks that often need to be done as part of a plan to achieve long-term success are not glamorized in the media. So some young people look down on them and their attitudes influence others who might not otherwise have those attitudes themselves.

Buzz Update: says: “You should check out The Retirement Risk Evaluator, an innovative new school retirement calculator. The Retirement Risk Evaluator is the very first retirement calculator to take valuation under consideration.” More on This Topic

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November 14, 2007 09:19 My E-Mail to Money Magazine re the Lindauerheads Board

Set forth below is the text of an e-mail that I sent to Money magazine on October 31:


Pat Regnier posted a message to the Bogleheads discussion board seeking comments re this board for an article that he is writing. I would be happy to discuss my experiences with him.

I am the poster primarily responsible for formation of the Bogleheads board. I posted for a bit under two years at the Vanguard Diehards board under the screen-name “hocus.” The focus of my posting there was the effect of valuations on long-term stock returns, as aspect of investing that I first learned about from reading John Bogle’s books and speeches.

One of the “leaders” of the board (Mel Lindauer, one of the co-authors of The Bogleheads’ Guide to Investing) took great offense to my posting on the valuations question and organized a long-running smear campaign against me and those who posted in support of me. This smear campaign grew so intense and ugly that the new Bogleheads board was formed as a means for community members who wanted to escape the ugliness to be able to do so.

My web site address is: There are numerous articles posted there about the Valuation-Informed Indexing approach to investing. There are also three calculators that show the effect of valuations on long-term returns. The Stock-Return Predictor shows that the most likely annualized real return for the S&P index over the next 10 years is less than 1 percent:

Here is a link to an article at my site setting forth snippets of posts of scores of contributors to the Vanguard Diehards board who objected to the smear campaign and who expressed a desire that honest and informed posting on the valuations topic be permitted in that board community (which is now the Bogleheads community):

I believe that discussion boards are a powerful communications medium of the future, especially in the personal finance field. They show us not only what people believe about investing, but also what they feel about what they believe. The destruction of the Vanguard Diehards board and its transformation into the Bogleheads board (where honest and informed discussion of the valuations topic is not permitted) tells us something important about what works for long-term investors. For buy-and-hold to work, those using this approach must have confidence in it. The destruction of the Vanguard Diehards board (which was once one of the most successful discussion boards in the history of the internet) reveals a lack of confidence in buy-and-hold among a good number of advocates of the conventional indexing approach.

The failure of the Vanguard Diehards board (which was achieved through formation of the Bogleheads board) is testimony to the ongoing (and likely soon to be accelerating) failure of the conventional approach to indexing. An investing approach that cannot be defended in rational debate on a discussion board is an investing approach not long for this world.

Indexing is a wonderful strategy that helped millions of middle-class workers become successful investors during the length of a wild bull market. But the principles followed by the “Bogleheads” must be changed to include making adjustments to stock allocations in response to dramatic changes in stock valuations if this strategy is to continue to be successful now that the wild bull market of the 1980s and 1990s has come to an end.

Update: I received a note from Money indicating that my e-mail had been forwarded to Pat Regnier, the reporter working on the article on the Lindauerheads board (I refer to the board as the Lindauerheads board when speaking to those who know of the background of its formation and as the Bogleheads board to newcomers to The Great Debate). I have not heard from Regnier. More on This Topic

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November 15, 2007 10:05 What Do Early Retirees Do About Health Insurance?

Liz Pulliam Weston recently wrote a follow-up to her article telling the stories of people who retired before turning 50. The new article is entitled How Early Retirees Insure Their Health. Here is the text of the section of the article describing my circumstances:

“The Bennett family of Purcellville, Va., has a $10,000 deductible as well as a higher monthly premium: $700. The policy includes maternity benefits, which some high-deductible policies don’t, and the coverage came in handy during Mary Bennett’s pregnancy with her younger son, now 5, when complications required her hospitalization.

” ‘On the one occasion when we faced a true emergency’, said Rob Bennett, 51, ‘the insurance covered what we couldn’t cover on our own.’ ”

I found it encouraging to read that: “Reader response to the two columns I recently wrote on early retirement, Retired by 50: Real Life Stories and Retired by 50: What It Really Takes, has been strong and overwhelmingly positive.” When I began researching the Retire Early concept back in the mid-1990s, there was little information available. The conventional media still treats this as a niche topic, but there is much more information available today.

The big breakthrough will come when people stop thinking of retirement as an all-or-nothing proposition. Most people see it as too weird to give up work altogether at age 40 or at age 45 or at age 50. There are millions, though, who would benefit from retiring from the bad side of paycheck dependence while continuing to find joy in doing fulfilling work for many years to come.

There is no rule of the universe that says that the only options available to you are to remain a wage slave until you grow old or to give up entirely on the idea of engaging in productive activity. Why not save enough to be able to do work that pays less but is more fulfilling? Or to be able to start your own business without taking on unacceptable amounts of risk? Or to cut back to a part-time schedule and have time for a life outside of work too? Or to take a self-financed sabbatical? Or to work for a non-profit enterprise?

I believe that the reason why most find it hard to save is that most think that saving is something you do to provide for an old-age retirement and most are bored by the idea of planning for their old age. Change retirement into something that is achieved in stages over the course of a lifetime spent in pursuit of ever greater levels of autonomy, and you make saving the exciting money allocation option.

By adopting a broader understanding of what it means to retire, we would provide people a realistic approach to life planning which would motivate large numbers to save far higher percentages of their income than most now think possible while also liberating lots of human spirits to do work far more important than the work they are engaged in today.

The potential downside? I am not aware of any.

Retire Different! More on This Topic

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November 16, 2007 08:05 Stock Panic Up Close and Personal

I’ve added an article to the “Stock Drunk” section of the site entitled Stock Panic Up Close and Personal. This article explores the behavioral finance implications of comments set forth in the “Investing Discussion Boards Ban Honest Posting on Valuations!” article.

Juicy Excerpt: I became radicalized. The word radical means “to the root.” The investing advice field is intellectually corrupt to the root. Most of the people in it are good people. But they are trying to adhere to a model for understanding how stock investing works that just does not make sense. We need to pull up the Efficient Market Theory by the roots and start over with something else. I couldn’t have told you what the Efficient Market Theory was on the morning of May 13, 2002. Today I say that we need to pull it up by the roots. That’s because of what I have seen and what I have learned during The Great Debate.

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November 19, 2007 15:47 Supporting a Spouse After a Job Loss

Three Suggestions:

1) The employed spouse needs to express to the unemployed spouse how comforting it is to him or her to know that, when the tables are turned, he or she will have the other spouse to lean on. Otherwise the unemployed spouse may feel resentment at needing to depend on the financial help of the employed spouse;

2) The employed spouse should refrain from suggesting that the unemployed spouse consider work at a lower pay or a lower status than he or she enjoyed previously. It may be that such positions should be considered at some point. The suggestion to consider them should come from the unemployed spouse; and

3) The employed spouse should make an effort to encourage as little change in the couple’s daily routine as possible. It is a mistake to come to rely on the unemployed spouse to run errands. Some of this will obviously go on. But the unemployed spouse should be focused on obtaining employment, and running errands can detract from that purpose in a way that can undermine his or her confidence about his or her talents and contributions.

Buzz Update: Andrey’s Blog says “I like this down-to-the-earth blog about gaining financial freedom. Simple tips for regular people.”
More on This Topic

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November 20, 2007 06:13 Girls Like Me

A little boy sat down and cried.
An old man passing asked him why.
He said: “I can’t do what the big boys do.”
The old man sat down and he cried too.

There’s a web site that tells people who advertise on the internet the demographic characteristics of the people who visit various sites. attracts people who are smarter than average and people who are wealthier than average and we get more women than men. Girls like me! That’s good!

I checked some other money sites and found that most of them are winning over more men than women. That means they’re dumb sites. Men are smart, but women are smarter, just as the Robert Palmer song (it belonged to Harry Belafonte in an earlier day) quoted above argues. That’s right, the women are smarter! They’re smarter than the men in every way!

Here’s what I really believe. It’s not that the women are smarter. It’s that they are smart about different sorts of things. The personal finance field is a field that has been dominated by men for a long time. They’ve scored some touchdowns, as grown-up boys are known to do. They’ve committed some fumbles, as grown-up boys are known to do too. We need to see women’s wisdom brought to bear on some of these questions. We need that real bad.

I bring a mix of the two perspectives. I like to argue. That’s a boy thing. I try to soothe ruffled feathers when I see the arguments turning personal. That’s a girl thing.

At the Motley Fool board, we used to talk about this using Myers-Briggs personality assessment tool terminology. The personal finance field is filled with INTJs. A quick Google search tells me that this is the “Scientist” type. I am told that: “INTJs live in the world of ideas and strategic planning. They value intelligence, knowledge, and competence, and typically have high standards in these regards…. The INTJ’s interest in dealing with the world is to make decisions, express judgments, and put everything that they encounter into an understandable and rational system…. INTJs tend to blame misunderstandings on the limitations of the other party, rather than on their own difficulty in expressing themselves. This tendency may cause the INTJ to dismiss others’ input too quickly, and to become generally arrogant and elitist.”

Songwriting is not the INTJ’s strong point. I think that much would be fair to say.

I’m an INFJ, one of the “Protectors.” The story on INFJs is that: “INFJs are gentle, caring, complex and highly intuitive individuals. Artistic and creative, they live in a world of hidden meanings and possibilities. Only one percent of the population has an INFJ Personality Type, making it the most rare of all the types…. INFJs have uncanny insight into people and situations. They get feelings about things and intuitively understand them…. They have strong value systems, and need to live their lives in accordance with what they feel is right.”

This is not the place to come to hear the conventional ideas on how to save or how to invest.

I take a look around me and notice that lots of people are unhappy with the amount that they save and it is instantly as obvious as obvious can be to me that the old rules do not work. The old approach does not do the trick for the people it is supposed to help. So it is broken and needs to be replaced. Does that not follow? Why are there some who give me such a hard time over this?

It’s even worse on the investing side. There I see extreme defensiveness among the “experts” and lots of normal people who evidence doubts about what the experts are telling them but who appear to be too intimidated by the fancy talk dished out by the experts to question them too much. Again, this tells me that the system is broken. So I quickly get about the business of building something better (driving the INTJs up a wall by presuming that it is possible to do so).

I begin with the premise that the conventional money advice doesn’t work. I’ve never even given a thought to reporting on the stuff you hear about at most other sites. The conventional stuff has failed people and thus it has failed, period. The pretty numbers lined up in pretty rows don’t impress me a jot. What doesn’t work for people doesn’t work, going by my way of looking at things. Things that don’t work are broken. In my eyes, it really is that simple.

If you want to say that it’s INTJs vs. INFJs, that’s fair. More people would see this as a girl vs. boy thing, I think. The INTJ exhibits traits that are generally characterized as boy traits. The INFJ exhibits traits that are generally characterized as girl traits. Scientists are boys and Protectors are girls (and there are lots of exceptions to both rules). It doesn’t surprise me that more girls than boys visit this site. I am telling the money story in a different sort of way, a way that has more natural appeal to girls than the dumb old boy way of telling it.

INTJs are smart. That’s one of their good points.

They have a hard time admitting it when they are wrong. That’s their biggest weakness.

INFJs understand people. That’s one of their good points.

The types of things they see are not the types of things that can be demonstrated with pretty numbers lined up in pretty rows. That’s their biggest “weakness” (I don’t see this as a true weakness — but then I wouldn’t, would I?)

Is it the INTJs or the INFJs who possess the truth?

God possesses the truth. God created INTJs and INFJs both. God loves us all and God wants us all to try to get along.

I know that I am right about this. I can just tell. More on This Topic

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November 21, 2007 14:27 Part Two of Rob’s Interview on the Money, Mission and Meaning Podcast

Mark Michael Lewis, host of the Money, Mission and Meaning podcast, recently completed an hour-long interview with me about my book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work. Part Two of the interview is now available for your listening pleasure.

Juicy Excerpt: It’s just amazing to me that in all of the years that I have been studying this, I have never heard this particular way of putting it and how much it opens up…. I was in the financial planning business…. I probably read 50 books on finance and money and saving and investing, and I can count the number of them on one hand for which I said, “well, there is something really new and important in here,” and your book is definitely in that category. I just want to thank you for that because that’s a gift to me.

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November 26, 2007 16:14 Motivating Kids to Save

Your child needs to be motivated to rein in spending or the battle to get him or her to appreciate the need for frugallity will be a never-ending one. My wife Boo and I have two boys — Timothy (8) and Robert (5). When they receive money from their grandmother or from their lemonade stand, we suggest that they save a portion of it to buy something big that they would not otherwise be able to buy on their own. They both love Star Wars Lego sets. So the goal might be to save enough to purchase a set that sells for $100, something they could otherwise obtain only on a birthday or on Christmas.

For an older child, the goal might be to save to buy a used car. The idea is to make saving a positive — saving permits us to own things that we otherwise could not own. If the child cares about the goal purchase, he is going to be more careful about each act of spending because he is excited to make progress on financing the goal purchase. More on This Topic

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November 27, 2007 11:15 Dating Up

True “success” requires money, but it also requires tapping into a lot of things that cannot be translated into dollars. A woman who thinks of dating a man who earns less as “dating down” is likely entering a doomed relationship by doing so. But a woman who takes little interest in how much income a potential dating partner earns can be making a smart choice if she dates down because she identifies a man who can bring things to her life not available to her today.

Earning more opens up opportunities, it allows for a greater scope of choices (because the woman need not worry about financial considerations). It is turned into a negative by a woman who equates “low income” with “low status” or “low value” or “low attractiveness.”

Buzz Update: A poster discussing The Stock-Return Predictor at the Motley Fool Investment Analysis Clubs (recently opened to the general public) says: “It sounds like Bennett and Russell have put in lots of time into the research behind this calculator, so it will be interesting to see if they are right.” Another observes that: “Move the P/E slider to about 6 and watch your possible returns grow! As you say, it’s an interesting tool.” More on This Topic

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November 28, 2007 08:35 The Efficient Market Concept Is a Big Bunch of Hooey

I’ve added an article to the “Stock Drunk” section of the site entitled The Efficient Market Concept Is a Big Bunch of Hooey.

Juicy Excerpt: The Efficient Market is so ill-defined that trying to prove its nonexistence is akin to trying to prove the nonexistence of a ghost. The advocates of the theory give it little shape or outline or matter. So those of us seeking to prove its nonexistence are left saying: “Do you see all of that nothingness in front of you? That’s not a ghost as you insist it is, it really is just the nothingness that it appears to be!”

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November 29, 2007 09:35 The Lindauerheads Explore Valuation-Informed Indexing

The Lindaurheads are celebrating the holidays in a positivelootingly splendalicious way. They are learning the steps to the latest dance craze — The Valuation-Informed Indexer’s Romp!

Let’s listen in.

The concept of Valuation-Informed Indexing is really just that (i.e., he’s an indexer who’s read Shiller and thus worries about valuations), no?

That’s essentially correct.

I try to learn from anyone who has something to teach me. I’ve learned many important things from John Bogle, the founder of the conventional indexing approach. I’ve learned many important things from Robert Shiller, the author of Irrational Exuberance. It would certainly be fair to say that the things that I learned from these two individuals (and from many others, to be sure) are reflected in my development of the Valuation-Informed Indexing approach.

I object when people try to fit me into a box, when they say that I must declare myself a bull or a bear or whatever. Yucko! I love stocks too much to ever feel comfortable being called a bear. And I love financial freedom too much to ever be willing to ignore the effect of valuations on long-term returns when setting my stock allocation.

My aim is to identify investing strategies that work in the real world. I have found insights from people from all sorts of schools of thought helpful in doing this. I am grateful to all of them for the help they have provided and I swear blind allegiance to none of them when writing the articles that I write to help my fellow middle-class investors attain financial freedom early in life. I would feel that I was not doing my job if I failed to report on both the good and bad of Shiller, Bogle, and lots of others.

Why is it that this approach is viewed as controversial in some quarters? That’s what gets me. To me this is just common sense. If you were the manager of a baseball team and you learned about a great strategy from another team, would you refuse to make use of it because you’re an Oriole and the idea was developed by a Yankee? That makes sense — not! I find the extreme dogmatism that evidences itself in a good number of investing discussions (this is a particularly severe problem among conventional indexers, but I’ve seen it elsewhere too) a big-time turn-off.

Is it just the messenger and the tone or is it also the message?

It’s the message.

I was one of the most popular posters in the history of the Motley Fool site on the morning of May 13, 2002. That was when I put up the post that kicked off The Great Safe Withdrawal Rate Debate. I think it would be fair to say that there has never in the history of the internet been an individual who has had as many smears directed at him as I have had directed at me as a consequence of my putting up that post and then responding to many of the hundreds of thousands of posts responding to it or asking questions about it that have been put forward in the years since. I am the same person today as I was on the evening of May 12, 2002. The difference is that I am today widely known as The Man Who Dared to Post Honestly on Safe Withdrawal Rates. Shivers!

The hate that a good number have evidenced toward me is not the result of me getting the number wrong. That could easily be forgiven (the authors of the Old School studies have rarely been taken to task for getting the number wrong). My terrible crime is that I got the number right. Honest and accurate reporting of the safe withdrawal rate is something that we had never seen before. This had to be stopped! This was unacceptable!

You see that this is insane, right? The Efficient Market Theory is today the dominant model for understanding how stocks work. The theory presumes that stock investing is a 100 percent rational endeavor. If that were so, people would be happy to know the true safe withdrawal rate. The very fact that some have responded with anger and hate and fury to accurate reports of what the historical data says about safe withdrawal rates shows that the Efficient Market Theory is a poor model for understanding how stocks work.

Is that not right? Do you see any flaws in that logic? I think this stuff is insane. I think I did a good thing in pointing out the flaws of the Old School studies and in working to develop an analytically valid methodology (John Russell deserves the lion’s share of the credit re that one). I’d do it again (not that I’m asking to relive the experience).

Trying to depend on valuations as an indicator for market timing is not a dependable way to manage risk.

The historical stock-return data says otherwise.

My guess is that this poster is confusing short-term timing with long-term timing. It is true that the historical data indicates that short-term timing does not work. However, the same data that shows that short-term timing does not work also shows that long-term timing does work. If we can trust the data on the one point, why should we not trust it on the other?

Bogleheads are more concerned with the risk management part, or keeping their portfolios balanced to their risk tolerance.

These words point to the big flaw of the conventional indexing approach. Investors should aim to keep their risk level roughly constant as prices change. When stocks go to the sorts of levels that apply today, investors who set their allocations at times of reasonable valuations see their risk levels increase dramatically. Conventional indexers often speak of the need to “Stay the Course!” It is not possible to Stay the Course in a meaningful way without adjusting one’s stock allocation in response to big price changes. The point of the Valuation-Informed Indexing approach is to make indexing a realistic investing strategy for both bull and bear markets.

Valuations do come into play though, through the usual rebalancing process, albeit free from the use of market timing indicators.

The Investor’s Scenario Surfer (see tab to left) shows that Valuation-Informed Indexing consistently beats rebalancing in returns sequences similar to those we have experienced in the historical record. In the event that stocks perform in the future anything at all as they always have in the past, Valuation-Informed Indexers will do better in coming years than investors following a rebalancing approach. The problem with rebalancing is that it keeps you at the same stock allocation even when the long-term value proposition of stocks has dropped dramatically.

I’ve been further looking at Bennett’s site and it certainly is an interesting read.

I am grateful for those kind words of Peter71.

You’ve got to love that he gives “twenty criticisms” of his own approach and “ten weaknesses” with himself as a money advisor.

I hope to do more of this sort of thing in days to come. The key to successful long-term investing is keeping one’s negative emotions under control. One that messes up lots of people is pride. People have some success in a bull market, falsely attribute that success to skill rather than luck, and then become locked into dubious strategies for fear that being open to new ideas would diminish their own and others’ perception of their great genius. We need to do what we can to stop ourselves from buying into such nonsense.

It can never be done away with entirely so long as man remains a fallen creature. Still, I see it as the job of all investing experts to do what they can to steer us in emotionally healthy directions. Excessive pride is not the way. Those who point out to us our weaknesses are our friends. We need to search within to learn what we are doing wrong more often and pat ourselves on the back for our great genius less often.

He’s a self-described “egomaniac.”

It actually was my wife who used that word to describe me (she said it out of love, and I am of course grateful for both her love and her honesty). I once heard someone say that anyone who writes a book is a bit of an egomaniac. To write a book is to proclaim to the world: “I know something that you should be paying attention to.” So I don’t see this comment as being entirely out of line. I try not to let my ego become a problem. But I think there probably is indeed some ego driving some of the effort that I put into building up my site.

There’s another side to this one, however. I think it would be fair to say that my investing approach is an extremely non-egotistical approach. When it comes to investing, I take the side of the Normals, regular middle-class investors who impress me far more with their commonsense observations than do the Big Shot Experts who react with rage and hostility and word games when their oh-so-important views are questioned. I also put a good bit of stock in the historical data, which I see as an objective tool that can be used to keep investors who otherwise might fall to the sin of excessive pride humble (the data shows that those who become too full of themselves always pay a price).

I do not believe that it is right for investors who follow realistic strategies to shiver and shake in the corner while the blowhards who had a few lucky years during the most out-of-control bull market in the history of the nation control the field. The Big Shots need to be called on their nonsense. Those who follow realistic strategies have nothing to apologize for. I think we need to speak up more out of charity for the millions who have a desire to learn about more realistic ideas but who have been blocked from doing so by a small group that believes intensely that it should never under any circumstances be questioned.

If that makes me an egomaniac, then so be it. I’m with the Normals all the way. I care about the Big Shots too. I offered to shake Mel Lindauer’s hand at the annual meeting of the Vanguard Diehards and that offer still stands today. I’m not such an egomaniac that I cannot shake the hand of a fellow who disagrees with me on a few points. I see no reason why investing discussions should not be conducted in a warm and friendly manner. But when Mel wages his smear campaigns at the Normals, I feel that it would be disloyal of me not to speak up on their behalf. I am just enough of an egomaniac to believe that whatever words I can put forward on behalf of a fellow community member under attack by the Big Shots might do a little bit of good (and there are indeed a number who have been kind enough to thank me for my efforts in this regard).

and/ a “numbers dunce.”

I really am a Numbers Dunce. That’s not a smear. That’s a truth.

I’m not sure he’s the one to be taking the non-stationary correlations from the Shiller paper and reifying them in the form of a retirement simulator.

That’s a fair comment so far as it goes. The reality, of course, is that the statistical work for all of our calculators was done by John Walter Russell. He’s the opposite of a Numbers Dunce. He’s a Numbers Wiz. So I think our work product has survived my personal deficiencies.

The other thing is — If John and I did not do what we do, who would do it in our place? Middle-class investors need the tools we have produced. And I don’t see anyone else jumping in to take over the work we do when we take a few days off.

It’s certainly a good idea for people to scrutinize our work product carefully and to offer constructive ideas for improvement (I’d like to see more of that). I have a hard time seeing how the world would be a better place if we hadn’t done what we have done, however. At the very minimum we have started some important discussions questioning what passes as the conventional wisdom on investing in the year 2007.

I think there’s definitely something to be said for the basic strategy.

So long as that is so (and it should be obvious at this point to all reasonable people that this is indeed so), the thing to do is to keep on doing. I like it when people ask hard questions because that is how we all learn. I do not like it when people engage in abusive and hostile posting. That sends away posters of intelligence and integrity. That hurts us big time.

While that messenger has some problems,

My problem is that I was the first human to point out that the Old School safe withdrawal rate studies are analytically invalid. That shouldn’t be a problem.

What makes it a problem is that the authors of the Old School studies do not want to acknowledge the analytical flaws in their studies and to correct them.

There are some who say to this day that investing is a 100 percent rational endeavor. Sure it is.

I personally agree with the concept of owning relatively more stocks when prices are reasonable or cheap and relatively less when they are expensive.

Lots of people see the merit of this when it is explained to them. That’s why Lindauer sees the Valuation-Informed Indexing concept as such a threat. These discussions have been going on for over five years, and never has a defender of the conventional indexing approach put forward a rational argument for why indexers should not lower their stock allocations at times of extremely high prices.

The investing ideas that I put forward are new only to those who learned about investing during the most out-of-control bull market in the history of the United States. The idea that prices matter was considered simple common sense in the years before the wild bull. My expectation is that it will be considered simple common sense again in a time not too terribly distant from today. The problem with investing pursuant to the fashion of the day is that fashions change.

But what valuation technique or model will you use as your crystal ball?

Note the use of the phrase “crystal ball” in a discussion of the importance of looking at the price being charged for stocks before buying them. If someone asked you to buy a house without first looking at the price, would you do it? What if the person laughed at you for wanting to use a crystal ball? Would that sort of argument persuade you?

Taking price into consideration is not akin to looking at a crystal ball. Taking price into consideration is examining the long-term value proposition available to you.

What is the alternative? Ignoring the long-term value proposition? What sort of crystal ball is it that tells some that that is an idea that might work out?

I cannot see into the future. I can see into the past. I can tell you that ignoring the long-term value proposition of stocks has never before in the history of the U.S. market worked out for those who tried it. It could turn out different this time. I am not going to put my retirement at risk on a bet that it will. I prefer to bet with the probabilities on my side. Counting on something that has never happened before to come through for you now is not a good-probability bet, in my assessment.

Sitting on the sidelines for the past 10 years hoping for a market crash has cost Rob and his followers (if he has any) a lot of money.

This is a false statement. It is a false statement that has been put forward scores of times and it is a false statement that has been corrected scores of times. I am ahead today as the result of my decision to look at how stocks have always performed in the past to form my decisions as to how much to invest in stocks in the present. I will end up much farther ahead in the event that stocks continue to perform anything at all as they always have in the past.

Bennett seems to be mentally ill.

Please check out the article entitled “Investing Discussion Boards Ban Honest Posting on Valuations!” at the “Banned at Motley Fool!” section of the site. Are the thousands of Retire Early Community members who have expressed a desire that honest and informed posting on the valuations topic be permitted at our boards all also mentally ill? When you find yourself making public pronouncements that thousands of smart and good people are mentally ill, it’s a good idea to check what it is that is driving you to make such a statement. I think it would be fair to say that it is not the strong confidence you feel in your current investing strategy.

These sorts of statements reveal an extremely weak hand.

This message is dangerous and heavily data mined.

If making use of the entire historical record dating back to 1870 is data mining, then any reference to how stocks have performed in the past is data mining. This poster is saying that it is not possible for us to know anything about stocks. If it is not possible for us to know anything about stocks, we should not be investing in stocks.

If it possible to know things. Those who possess a rational desire to learn have managed to learn things by looking at the historical data. Those who possess an emotional desire not to know what the historical data says have managed not to learn. My beef is with the experts who encourage the latter group and discourage the former group. We all should be working together to learn all that we can. I have never in my life seen so much human energy directed to the task of blocking learning experiences as I have seen during The Great Debate.

Whatever I’ve said above I mean in a courteous, but cautionary, way.

Do these words sound threatening to you? What is this poster concerned will come out if discussions are held?

I have never encouraged the Goons to engage in deceptive and abusive posting. Each time they do so they make it harder on all other community members but also on themselves. There is obviously a need for integrity in investing discussions.

How did things ever reach a point where certain Big Shot Experts felt that they could say absolutely anything, no matter how deceptive and no matter how abusive, and get away with it? Take a look at the P/E10 value that applied in January 2000 for an important clue.

Bull markets are exercises in deception. What we do in a bull market is to make a collective decision to pump up the nominal (but not the real) value of our stock portfolios for a time. Wild bull markets always end badly. There is not a single exception in the historical record. That’s because lies always end badly. Bull markets are lies. That’s the reality, stated in plain and simple terms.

What sustains bull markets? Lies. That’s what it takes.

When we have told so many lies that it makes us sick, we return to reasonable price levels.

What distinguishes me is that I got sick of the lies a bit sooner than some others. Others are catching up with me as we speak.

Or pursue the question in terms of the concept of adjusting exposure to “stocks” or whatever based on valuations (or expected future returns), rather than in terms of “so what’s all this about Rob Bennett, then?”

Both paths lead to the same place.

Anyone who examines the valuations question closely is going to end up studying the historical data. Anyone who studies the historical data is going to see that a lot of what we have been told about stocks over the past 20 years just does not add up.

“Rob Bennett” is the name of a reporter who tells people what the historical data says and then responds to their questions about what he has reported in as clear and plain a manner as possible. This reporter has been banned from several discussion boards because what he says upsets a number of individuals who have come to think of themselves as Big Shot Experts Who May Not Be Questioned.

Banning Rob Bennett is not the same thing as banning the historical data. The historical data is like an ocean or a mountain. It cares not what smears are aimed at it. It’s going to continue to do its thing just as it always has, Goon posters be darned.

The Normals need to develop the fortitude to stand up to the Goons. That’s when things flip. That’s when the healing process begins.

A true Expert would be encouraging the Normals to get up and stand up for their rights. My beef with the Experts is that many have failed to do this. Too many have on occasion put forward words of comfort for the Goons.

I also would not agree with relying on one “magic” metric such as P/E10.

And of course there is no one who recommends such a thing.

If you look at Rob’s book on Amazon, there is a negative review. Rob responded to it simply with “What have you got against Mallo Cups?”

I have never offered my book for sale at There have been a few cases in which someone who purchased a copy at my web site offered the used book at Greaney asked his Goons to go over there and post negative reviews. He asked this before the book was even published, before he even had a chance to read it.

How would you respond to such obvious and such vicious nonsense? I responded with a joke. My take is that that’s a pretty darn emotionally healthy way of responding, given the nature of what it is that I am responding to.

Greaney got the number wrong in his study. That error will cause hundreds of thousands of busted retirements in days to come, in the event that stocks perform in the future anything at all as they always have in the past. That’s a joke that’s not so funny, in my assessment.

Greaney has not betrayed us only on the investing side. He has betrayed us on the saving side too. Greaney is one of the people who encouraged me to write Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work. He said in his five-star review of my Secrets of Retiring Early report that he was sure that if I ever wrote a book on the subject , it would become “the Bible” of the Retire Early movement.

When did he change his mind? He changed his mind on the day when I pointed out the error he made in his study (an error that he has not corrected to this day).

Investing is 100 percent rational? No. Investing is primarily an emotional endeavor and only secondarily a rational one. Greaney is emotionally invested in his study. He is not able to bring himself to correct it. So he lashes out at any who post honestly on the safe withdrawal rate topic.

We are not just talking about one highly abusive internet poster. There are hundreds who have posted in defense of Greaney and his study. Why? What possible reason could there be for investors to want to be told the analytically invalid safe withdrawal rate and never to be told the analytically valid safe withdrawal rate?

There is no possible rational reason. There are only emotional reasons. The Efficient Market Theory has been disproven by the anger and hate and hostility and rage that we have seen evidence themselves in our investing discussions in recent years. Denial does not work. The purpose of that rage is to hold back reality. Reality is going to crash down on us no matter how hard we fight to hold it back. When you travel to the P/E10 levels we traveled to in 2000, returning to reality hurts big bunches.

Your toy balloon has sailed
Into the sky, love.
Now it must fall
To the ground.
Your sad eyes reveal
Just how badly you feel
Because there aint no easy way down.

–“No Easy Way Down “– Written by Goffin/King, Sung by Dusty Springfield

The links in this post will lead to plenty of discussion about (and by) Mr. Bennett.

The site linked to is owned by John Greaney.

Why would people who purport to be followers of John Bogle be linking to a site owned by John Greaney? This is why I refer to the board as the Lindaurheads board rather than the Bogleheads board (its official name). John Bogle is one of my heroes. It is an insult to him and to his investing philosophy for a board that carries his name to be linking to Greaney’s site. I mean, come on!

Is Bogle a Lindauerhead? I say “no.” I think it would be fair to say that there is evidence pointing in both directions. I will continue to say “no” unless and until I see clearer evidence that I am wrong to do so.

Given there’s also some posts on Rob’s site about how no one on this site is willing to discuss valuations at all (certainly not what I’ve found) I think you could argue that actually doing so might be the best revenge.

There’s huge interest in the valuations topic. I have never seen any other issue in the personal finance area generate so many questions and comments and responses.

I certainly do not say that there are few people willing to discuss valuations. There are large numbers with an intense interest in doing so. However, realistic discussion of the valuations topic has been banned at a number of boards, including the Lindauerheads board.

Posters at that board are permitted to say that valuations are high and that returns are likely to be somewhat lower as a result. They are not permitted to calculate how much lower returns are likely to be (presuming that stocks perform in the future somewhat as they always have in the past). Why not? Investors need this practical bottom-line information to be able to act on what they learn about the effect of valuations. It is not enough for investors just to know things in a vague way. Unless we act on what we learn, we suffer the losses that follow from failing to act. People need actionable information.

Posters are also not permitted to point out the contradictions in John Bogle’s statements re valuations. Bogle is one of the leaders in the field in pointing out that high valuations cause low long-term returns. Yet Bogle tells investors that they do not need to lower their stock allocations at times of high valuations. This advice is in conflict with his “Stay the Course!” injunction. When the risk/reward profile of stocks changes, investors must adjust their allocations if they are to Stay the Course in a meaningful way.

Posters are also not permitted to point out the flaws in the Old School safe withdrawal rate studies. The analytical errors in the Old School studies are going to cause hundreds of thousands of busted retirements in days to come, in the event that stocks perform in the future anything at all as they have always performed in the past. Retirees and aspiring retirees should be put on notice of the dangers of the demonstrably false claims put forward by the authors of these studies and should be pointed to analytically valid studies (please see the “Risk Evaluator” tab to the left).

I hadn’t known Shiller owns stocks himself so that’s something learned in the process.

We learn all sorts of things when we explore a topic. That’s the benefit of setting up investment discussion boards in the first place.

I’ve read that Shiller has a 60 percent stock allocation, but with only a small amount in U.S. stocks. I’ve only read this in one article and the article provided few details. I would like to know more about Shiller’s portfolio decisions.

I’ll spare people the “Why No Love for Dow 36,000?” thread, but as I’ve suggested a couple times before I do think there could be a shred of truth to the idea that whereas P/E’s (including P/E 10’s) were once quite meaningful as predictors of 10 year returns (basically Shiller’s claim) they’ve now for various reasons become less so.

I agree with Peter that there may be something to these arguments and that it would be a good idea to explore them in more depth.

I haven’t read that book either, though, so I have only the vaguest sense of what those reasons are.

The argument made in Dow 3600 is that the middle-class has only recently discovered that stocks are not as risky as once thought and that this is going to cause the risk premium attached to stock ownership to change forever. The adjustment to a new risk premium would cause stock prices to skyrocket for a number of years. From that time forward, long-term stock returns would be permanently diminished.

The reason valuations matter so much in the writings of Shiller and Bennett is because they are considering only one slice of the stock market.

All of the articles at this site are rooted in research of how the S&P 500 has performed in the past. There is enough data available on the S&P 500 to permit meaningful statistical insights. Shiller and Russell (John Walter Russell did the statistical work on the calculators that appear at this site) are certainly not the only researchers using data from the S&P 500. This is common practice.

That said, it is so that investors not investing in the S&P can realistically expect at least somewhat different results. I certainly have never claimed otherwise.

After Stein & Demuth’s Yes, You Can Time the Market! book came out, there were a whole bunch of discussions on avoiding stocks when their valuations were high. Unfortunately, said strategy stopped working after 1985, oopsie.

The data shows that stocks have performed over the past 22 years in accord with how they have always performed before that. The price level reached in the late 1990s is the highest ever reached by far. So we should expect the price drop to follow to be the biggest ever seen in the history of the U.S, market. We have seen a significant price drop over the past eight years, but we are still at extremely high prices levels. In the event that prices continue down to normal levels, the strategy of taking prices into account when investing in stocks will have worked one more time.

It is only if that does not turn out to be so that we will be able to conclude that stocks have for the first time behaved in a manner totally unlike how they have always behaved before. It is hard for me to understand why this poster believes that the question has already been settled. My personal take is that the head -in-the -sand attitude being evidenced here is a bad sign indeed.

We don’t know the future. We cannot entirely rule out the possibility that stocks will indeed perform this time in ways in which they never have before. But why do we see this rush to judgment, this intense desire to conclude that stocks have already performed in ways in which they never have before? This I do not get. I do not view this as rational. I view it as highly emotional and I view it as a ominous phenomenon for those invested heavily in stocks today.

Even if you are personally convinced that stocks really are going to perform in the future differently than they ever have in the past, I would suggest giving consideration to the idea of hedging your bets a bit. I would also suggest to this poster that he try opening his mind a bit to the other side of the story. Banning discussion of what the historical data says protects you from hearing the message of the historical data. It does not change the realities of what the historical data says.

Rob Bennett [aka Hocus] totally exited stocks in 1995-1996 and has suffered severely for it.

I noted above that this is false statement. I am financially ahead today on my decision to use the historical data as a guide in setting my stock allocation.

Say that we were discussing a topic other than investing and that you saw one side in the discussions put up the same deceptive statements over and over and over again. Would you not conclude from that that those on that side of the discussion were holding a weak hand? I sure would. I see no reason why we should not apply the same tests that work in all other areas of study to the stock investing area. When people engage in these sorts of tactics, there is a reason.

This is a sign of intense defensiveness. Why is it that those trying to argue that stocks will perform differently in the future than they ever have in the past are so defensive? I think it is because they themselves possess inner doubts about their position. This stuff is eating them alive. They are not only financially invested in stocks, they are emotionally invested too. They need to try to chill out a bit for their own good, in my assessment.

Not just M*. He was banned at 10 web forums before he found M* and has been banned by another 4 since M*.

This is of course nonsense. Orion has a long history as an abusive poster at the board owned by Greaney. He has never been banned, to my knowledge.

He actually lists most of his bannings on his website. He seems to think – or wants the reader to think – that this proves he knows something that “they” don’t want you to hear.

I list the bannings because I think it is information that my readers should know about. Those who support the Campaign of Terror take one view of the bannings and those who oppose it take another. In either event, the fact that the bannings took place is a significant fact.

I generally go along with the statement that I believe that I know something that the Big Shots do not want you to hear. The only part that causes me some unease is the possible suggestion that I possess some sort of super-level intelligence that permits me to know these special things. That’s not even a tiny bit true.

There are many people who know what I know. I have several Community Comments articles at this site that provide snippets of posts from hundreds of such people. The reason why I founded the Retire Early Community in the first place was so that we could all get together and talk these things over and thereby come to know more than we could ever know just by listening to the experts. On that score, our community has been a huge success. We do indeed today know all sorts of things that few of the big-name experts are willing to say publicly.

We just can’t talk about what we know on the boards that we built for that purpose! That’s the frustration.

We know what we know. Those who do not want to know what we know of course do not know and cannot be forced to know. We just need to continue to move forward, one step at a time. We built the boards as a learning project and we have every right to use them as such. The reality is that even the Big Shots would be better off permitting honest and informed posting on all topics relating to the Retire Early project.

Permitting honest discussions is a win/win/win. Prohibiting honest discussions is a lose/lose/lose. We now have many “leaders” whose noses are out of joint because they have many deceptive and abusive posts in their files and are too proud to acknowledge this. That’s extremely unfortunate and it is certainly not something that I ever wanted to see happen.

We all have an obligation to do what we can to help those people out. We don’t do that by encouraging them to continue the Campaign of Terror. We do it by insisting (not asking!) that the site owners enforce the published rules of the various sites in reasonable ways. The rules needed to permit our boards to achieve their full potential are already in place. The task ahead of us is persuading the site owners to enforce those rules for the good of the entire community, the Big Shots very much included.

Please read the Lindaurheads thread if you have some time available to do so. And please think through the points made from both sides of the table. This is important stuff. It’s not hard to understand. It takes a little time, though, because we have heard the nonsense gibberish bull-market stuff for so long now. The Summer of 1999 is over. We need to begin adjusting our investing strategies to what makes sense for investors living in the Autumn of 2007.

I thank Peter71 for having the courage to put up the kick-off post. That’s how it is done. When one community member sticks his neck out a bit, that puts the idea in other peoples heads that perhaps they might try the same. The idea eventually catches on and honest and informed posting over time becomes more and more and more accepted. Eventually we get to a point at which the idea of placing a ban on honest posting is viewed as an absurdity.

What we really need to see is a reversal of what took place during the surging of the out-of-control bull. The investing ideas explored at this site were considered simple common sense in the days before the wild bull. It is the desire among many to keep the artificial and deceptive bull prices in effect a bit longer that is the driver behind the prohibitions on straight talk on stock investing that we have seen grow so powerful in recent years. This is all reversed in the same way that it was built up — bit by bit, little by little, poster by poster, investor by investor.

Each time we see another plunge in stock prices, we become able to be a bit more honest in our discussions of this important topic. I don’t like to see people lose money, but I do like to see people become more in touch with the positive side of their humanity. Let’s first lower our stock allocations so that we personally are protected from the awful downside of the huge bull and then get about the business of doing what we can to get prices back to more reasonable and more appealing and more honest levels.

Yes, humans are capable of out-of-control greed. But guess what? Humans are capable of brave and noble and tough-minded and charitable acts of honesty too. Both things are so. Let’s all work together to make stock investing safe for humans once again! And then let’s get back to the business of putting together realistic plans to retire early!

Perhaps we’ll see an end to the Campaign of Terror wrapped up in a pretty box under the Retire Early Community’s Christmas tree on the morning after Santa comes. It couldn’t hurt to put this item first on all of our lists, could it?

Come on, Mel — Do the Romp! More on This Topic

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November 30, 2007 16:47 The Dark Side of Compounding Returns

I’ve added an article to the “Upsizing” section of the site entitled The Dark Side of Compounding Returns.

Juicy Excerpt: You face a choice to spend money on a gym membership and to get in shape or to put the money in your Section 401(k) account. Most money guides suggest that the better choice is to save. This is not necessarily so. The reason why it is not necessarily so is that spending generates compounding returns too, often benefits greater than the benefits that can be obtained from saving.

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October 2007 << >> December 2007