PassionSaving.com Home Page : : June 2007
June 1, 2007 14:51 – Finding the Love of Your Life in 10 Easy Steps
You would like to fall in love. You see the cover of a magazine that promises an article inside on “Finding the Love of Your Life in 10 Easy Steps.” What is your reaction?
Most of us respond with skepticism to such a pitch. There might indeed be some helpful suggestions put forward. Perhaps the article points out that, the more desperate you are to find someone, the less likely it is to happen. That’s so. So it is a helpful tip to consider.
You cannot really find the love of your life by following 10 easy steps, however. Everything you do from the time you are born is part of the project that leads somewhere far down the line to you finding the love of your life. Heaven help us all, but my boy’s obsession with Star Wars may in some way influence his quest for the love of his life. Some girl will have a vocal tone that reminds him of Princess Leia and that will trigger something inside that, combined with all of her other wonderful qualities, will make her irreplaceable to him. I’m exaggerating, but not all that much.
Saving tips work the same way.
Saving tips are valuable. I would like to see people in our community share saving tips with each other. We all can learn about what is likely to work for us by hearing what has worked for others.
It is my belief, though, that saving tips can only take us so far. The purpose of saving is to build a new and more free life for yourself. That’s a big project, a project of roughly the same consequence as the falling-in-love project (not quite, perhaps, but it comes close). You cannot get there on tips alone.
Seeking Financial Balance told an illuminating story in the blog comments from a few days back. It was a story about how she is pushing her husband to get more enthusiastic about saving and he is resisting the push a bit. She was feeling frustrated that he does not feel the same way about saving as she does. My take is that it is the feeling of the frustration that she is feeling and her struggle to figure out how to get beyond it that is the saving project. Dealing with the struggle that she is dealing with is what saving is really all about.
We all have different obstacles holding us back. With some, it is a reluctant spouse. With some, it is a moderate income. With some, it is not realizing the importance of saving until late in life. And on and on.
There are no tips-style answers to these sorts of problems. The problems can be overcome. But not in 10 easy steps. These sorts of problems are problems that you do battle with on a daily basis for years before you find yourself standing safely on the other side of the river.
What we need to deal with problems of this sort are not tips so much as stories. We need to share stories of how we kept our courage and our focus and our determination and our hope.
It’s stories that really help when trying to find the love of your life, isn’t it? You need something bigger than a tip to gain confidence that you can tackle so large a life endeavor. Sometimes you need a novel. Sometimes a Beatles single does the trick. Sometimes you need to hear a real-life story told by a good friend.
This is the sort of thing we most need in trying to become effective savers. Saving is not so small an endeavor that effective advice about how to do it can be reduced to the number of words used to convey a tip. Tips do help. Tips do have their place. But becoming an effective saver requires hearing stories of effective saving told by others who have been there before us and who have found their way to where we want to go.
If I fell in love with you,
Would you promise to be true?That’s from one of those Beatles singles. It has a message to tell to aspiring early retirees.
You like the idea of financial freedom, just as you like the idea of falling in love. You don’t know starting out what sort of price you are going to be asked to pay. You don’t know for certain how things are going to turn out. Will you be sitting on top of the world? Will you be feeling like a fool?
To save, you need to give something up in hopes of attaining something else. Saving means taking a chance. Saving is risky.
It’s a drama. It’s a quest. It’s a heroic adventure.
It’s more than just holding hands.
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June 4, 2007 10:07 – Workplace Nicknames, Charitable and Otherwise
The Albany Times-Union today published an article exploring whether it’s a good idea to assign nicknames to coworkers. I argued in favor of nicknames, but with an important caveat. Here’s the text of the section of the article quoting my views:
” ‘Humans assign nicknames to others in all human endeavors. They promote bonding. So they very much belong in the workplace,’ says Rob Bennett, who is based in Purcellville, Va. He studies the workplace and writes a financial blog on PassionSaving.com. ‘To frown on them is to frown on creativity.'”
“He adds, though, the only good nicknames are the ones the named knows about (so McNightmare and Tootsie would not apply). Secret titles are not the product of a charitable mind, he says, and that’s when problems erupt.”
So, for example, “You Know Who” might not be a good way to refer to someone with whom you interact on internet discussion boards. And “El Hoco Loco” is definitely not cool.
Before some smart guy brings up “The Little Stinkers,” please be advised that it took me a long time to come up with one that was even halfway accurate and that didn’t sound a lot worse. On Planet Internet, finding charitable things to say about some of the individuals that the guards permit through the gates can be challenging work!
In all seriousness, I was troubled by the line in the article following the ones quoted above in which the reporter noted that: “With that in mind, the majority of local submissions we received were names of the noncharitable type.”
If you are ascribing ugly names to your coworkers, you need to reconsider whether that is something you really want to do. You’re hurting yourself. You’re letting negativity have too much influence on your thought processes, and that’s going to do harm to your quest to achieve financial freedom early in life. I’m sure of it.
One office worker quoted in the article argued that: “It’s the people we don’t like or who give us a hard time [who we nickname] — the ones we are usually powerless against because they are our superiors in the chain of command, so we can’t very well beat them up, or yell at them. We have to find some way to deal with it.” I can go along with that to a point. There was a group of us at one of the newsletter companies that I worked at that referred to a boss of ours as “That Woman.” I didn’t see that as an entirely unconstructive way to let off some steam over the frustration she caused.
J.T. O’Donnell, who co-authors the syndicated column “J.T. & Dale Talk Jobs,” argues in the article that: “If you look at nicknames, they are really one-word critiques, and it’s bias labeling.” She sees the assigning of nicknames as a sign of insecurity. I can see the point. I don’t think that the “That Woman” name crossed the line. Perhaps I’m wrong.
Sometimes you need a shorthand way of saying something. I refer to today’s stock prices as “la-la land stuff” and I refer to the Old School safe-withdrawal-rate studies as “science fiction.” It upsets some people when I do that. Should I refrain?
There are lots of people who will get hurt if these points are not communicated clearly and directly and firmly and effectively. I see it as part of the problem of bull markets that those overinvested in stocks get to be too touchy about having their views questioned just at the time when it becomes most important that they be questioned. Part of the point of using strong language is to be assertive and thereby to give encouragement to those who are beginning to experience doubts about the conventional wisdom of the day to work up the courage to themselves say out loud things they have never before said out loud. I believe in sportsmanship. I don’t believe in applauding the umpire when he makes a bad call against my team.
So I have one foot in both camps on this one. We need to call things what they are. If a boss is a tyrant, it’s perfectly natural for those who suffer the effects of the tyranny to give voice to their discontent in some way. There must be lines, however. Those who are inappropriately personal in the nicknames they assign to coworkers or bosses dehumanize themselves in the process of trying to dehumanize others. Crossing the line shows that you have lost your perspective and your sense of humor. It shows that you let the coworker or boss get to you in a serious way. Yes, it reveals insecurity.
The difference is one of intent. Letting off steam is a constructive purpose. Talking straight is constructive purpose. Bonding with your fellows is a constructive purpose. Doing harm to another of God’s creatures because he or she ruffled your feathers a bit and you are not a big enough person to take it as all a part of the wonderful game is not a constructive purpose. And, yes, the boss who didnt give you the raise you were hoping for is one of God’s creatures. Even if she’s in need of an exorcism, she’s one of God’s creatures (a joke!).
Would I have called my old boss “That Woman” to her face? Probably not. But you know what? I don’t think she would have been upset to know that that’s what we called her. She was big on creating distance between the boss and the workers. To those who used the name, the nickname was intended as a criticism. To the one assigned the name, the attribute being given recognition was a point of pride. That’s why I think it was on the right side of the line. Our primary purpose was to describe her rather than to ridicule her.
Those who engage in the truly ugly stuff are, oh, how can I put it? They have a certain, well, you know, a certain, um…quality of, um….
Oh, what’s the point of holding back? Lets just say it the way it is and let the chips fall where they will.
They’re Little Stinkers, that’s what they are! More on This Topic
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June 5, 2007 09:37 – The Normal Retirement Age It Is a Changin’
I’ve added an article to the “Retire Different!” section of the site entitled The Normal Retirement Age It Is a Changin’.
Juicy Excerpt: The passing of the normal retirement age is a frightening specter to many. For good reason. Most of us have devoted little time to planning our careers or our financial affairs. Still, the news is not all bad. Those who do plan have before them more opportunities than were available to workers of any earlier time. Today you can choose your retirement age just as you can choose your pizza toppings or your cola.
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June 6, 2007 09:47 – Life/Work Balance Begins with Money Balance
I’ve added an article to the “The Self-Directed Life” section of the site entitled Life/Work Balance Begins with Money Balance.
Juicy Excerpt: I don’t believe that our employers can solve our life/work balance problems. Perhaps they can do better than most do today. But I don’t think they can ever entirely give us what we want in this area. I’ve come to believe that seeking to change our employers to achieve life/work balance is the pursuit of an impossible goal. We should let our employers at least partly off the hook. We should put more energy into trying to achieve life/work balance for ourselves through the adoption of more effective money management strategies.
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June 7, 2007 10:08 – Bogle Disgraces Himself
Morningstar.com says that its discussion boards are to be used “for entertainment purposes only.”
No.
That’s stupid lawyer talk. It’s not real.
I’ve posted at the Vanguard Diehards board. I’ve spoken with and made friends with hundreds of fellow community members there. Many of those people are not there for entertainment. They are there to learn about how to invest successfully.
That shouldn’t come as a shock to anyone. John Bogle is the founder of the Vanguard fund group. Bogle started a revolution in middle-class investing when he began promoting the indexing concept in the late 1970s. Indexing gave middle-class investors a way to enjoy the exciting returns provided by the stock market without needing to spend large amounts of time doing research on individual companies and without needing to take on large amounts of risk. Bogle is a Hero of the First Rank to the Retire Early movement. Without Bogle’s help (I first learned about the effect of valuations on long-term returns by reading Bogle’s book), I could not have developed the Valuation-Informed Indexing approach to investing.
Bogle has failed us in an important way.
One of the things that draws people to Bogle is his humility. He points out to his readers near the end of his book that, like all of the humans, he is capable of making mistakes. So he asks his readers not to take his claims on faith. Good for him. That is precisely the sort of thing that needs to be said more frequently by investing experts.
And be meant. The words alone don’t do it. The sayers of those sorts of words need to in circumstances that require it translate the words into real-world action.
Bogle has made mistakes. He needs to get about the business of learning about them and fixing them. The very first step is getting about the business of seeing to it that those who follow his investing approach can have honest and informed discussions among themselves about the flaws we have identified in his ideas. Bogle does not need to do all the work on his own. The Vanguard Diehards board has a mission that runs in two directions: it teaches followers of Bogle’s approach what he knows and it teaches Bogle about what his followers have learned by testing and studying and exploring his approach in the real world.
Bogle tells his followers to stick to the same stock allocation regardless of the extent to which valuations change. That is dangerous advice. Stocks become a far more risky investment class when prices travel to the levels where they reside today. Most of today’s indexers are in far deeper waters than they realize.
Bogle hints at the dangers frequently. The hinting has not communicated the message that needs to be communicated. It is very difficult for people to engage in common-sense investing when prices are where they are today. People hate the idea of engaging in common-sense investing when prices are where they are today. Bogle needs to speak in clear and direct and plain and understandable terms on this issue. He needs to implore people to lower their stock allocations and thereby to “Stay the Course” (one of Bogle’s favorite phrases) as to the risk levels they elected for themselves in earlier days.
I cannot tell you why Bogle has not done this. My sense is that there are numerous factors involved. I will explore them in future blog entries and in articles posted to the site. Today’s sermon is a call on Bogle to take action to see that others in his movement can explore these issues while we are waiting for him to come around.
There have been hundreds of community members at the Vanguard Diehards board who have expressed a desire that honest and informed posting on the valuations topic be permitted. The Three Authors (Mel Lindauer, Taylor Larimore, and Michael LeBoeuf — they wrote a book entitled The Bogleheads Guide to Investing) have made clear that these requests will not be honored. They have worked with the site administrator at the Morningstar.com site (Casey) to have posters who repeatedly post in an honest and informed way on this topic banned from the site. I am one of those who has been banned. I am not the only one.
This is unacceptable.
Thousands of middle-class investors are likely to suffer serious financial harm as a result of the prideful and obstinate and degrading and dishonorable actions of three individuals and their defenders. Not good.
Bogle has had words posted to the Vanguard Diehards board on his behalf. Bogle speaks at the annual convention held by this board community. There was an article published in Money magazine about this board community that included comments from Bogle making clear that at times he follows the board closely. I strongly doubt that Bogle knows the full story of the behavior engaged in by The Three Authors and their defenders. I find it all but impossible to imagine that he does not know enough at this point to know that a man of his stature should not be associating himself with these sorts of individuals.
There is an old saying that informs us that we are known by the company we keep. Lindauer defends Greaney. Bogle stands on the same stage as Lindauer. What does that say about Bogle?
One of the Greaney Goons informed me when I began posting at the Vanguard Diehards board that The Three Authors had the “juice” at Morningstar.com to get honest and informed posting on valuations banned. My strong hunch is that Bogle has the juice to get it unbanned. A problem that we have been dealing with since the early days is that the bad guys are consistently willing to put any juice they possess to work doing us harm while the good guys seem inclined to keep their juice bottled up until it turns sour. I’m beginning to think that a good way of describing an out-of-control bull market is as “a time for the drinking of sour juices.”
Mr. Bogle, you disgrace yourself by your continued association with internet Goons. Please fix. More on This Topic
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June 8, 2007 09:54 – Rob Bennett’s Weaknesses as a Money Advisor
I’ve added an article to the “Heroes and Villains” section of the site entitled Rob Bennett’s Weaknesses as a Money Advisor.
Juicy Excerpt: It would be nice if I were The Answer Grape and I could tell you whatever you wanted to know about any money question without having to consult any notes. I can’t, though. Part of the reason why I got out of the accounting firm is that it was clear to me that I could never rise to the top competing with tech-heads (I mean no disparagement — these people do important work). I think that God meant for them to do what they do and for me to do what me do. What we do. What us do. Oh, you know what I’m getting at. What I do!
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June 11, 2007 09:12 – Bet Big on Brazil! (Or Don’t.)
Robert Shiller, author of Irrational Exuberance, is my second favorite investing analyst (John Walter Russell is of course at the top of the list). There was an article in the Wall Street Journal on Friday which stated that Shiller “loaded up” on Brazilian stocks a few years ago and continues to believe that “things are really looking good.”
I offer below ten comments brought to mind by reading the article.
Comment #1: The article suggests that the reason why we should care what Shiller thinks is because “he explained the 2000 stock-market slide (before it happened).” I find that comment highly annoying.
Shiller’s book was not directed solely at exploring the tech stock bubble. Yes, it did do that. But it did much more than that. It explored how bubbles work in general. And it showed that the S&P index remains in bubble territory to this day.
U.S. stocks rose in the late 1990s to price levels far higher than they had reached at any earlier time in history. They have since dropped to about where they were in the months just prior to The Great Crash of 1929. Is that a “slide”? Yes, in a technical sense. A more accurate way of putting it is to say that U.S. stocks have in the past seven years completed the first of a series of slides needed to bring them back to reasonable and sustainable price levels. It is dangerously misleading for a reporter to speak about the slide in the past tense, or to suggest that Shiller believes that the slide is something that has already been accomplished.
The number of investors who were seriously hurt by the tech bubble is small compared to the number who likely will be seriously hurt by the S&P bubble. Apologists for the S&P bubble feel a need to paint the tech bubble as an aberration. But many of (not all of) the same factors present in the tech bubble are present in the S&P bubble of today. There are good reasons why Shiller is avoiding U.S. stocks today. If his views on Brazilian stocks are worth knowing, his views on U.S. stocks are worth knowing too, and Shiller’s research shows that U.S. stock investors have something ahead of them much worse than the slide of 2000.
Comment #2: I was glad to see the article. The only flaw I have been able to find in Shiller’s writings is that he rarely offers practical advice for those who take seriously his warnings to steer clear of heavy investing in U.S. stocks at today’s prices. A few weeks ago, I saw an article that said that Shiller held a stock allocation of about 60 percent. The obvious question was — What stocks does he like, if not U.S. stocks? This article provides a partial answer.
Comment #3: It bugs me that the article ends with a quote from someone other than Shiller suggesting that now is not a good time to buy Brazilian stocks. Placing opposing quotes from different experts side by side strikes me as a cheap way to present a show of balance.
I prefer articles in which balance is achieved through a presentation of different arguments rather than through the presentation of different sources. When it is just two different people saying two different things, it leaves the reader not knowing which argument the author finds more compelling. I see it as part of the job of the writer of an article to offer some thoughts as to who is right. The reporter should know something about the topic or he shouldn’t be writing about it, and, if he knows something, he should be willing to share what he knows with his readers.
Comment #4: Shiller’s recommendation is enough to put Brazilian stocks on my list of “Topics for Further Study If Time Permits.” I know nothing about Brazilian stocks. But I know a lot that’s good about Shiller. Shiller is not just smart; he’s gutsy and he’s a straight-talker.
We all need shortcuts to cut through the mass of data potentially influencing our investing decisions. For me, every word put forward by Shiller counts for ten put forward by just about any other investing analyst (Russell and Buffett and Munger are exceptions).
Comment #5: I advise you not to put money into Brazilian stocks just because Shiller said it is a good idea. There’s a big difference between putting something on your list of Topics for Further Study if Time Permits and putting money on the table in regard to that something. When money is on the line, you need to be sure. If you are not sure, there’s a good chance that you will lose confidence in your investment choice at just the wrong time. Being sure requires personal research.
The benefit of an article like this is that it tells you what you should be studying, not that it tells you what to invest in.
Comment #6: Personally, I am unlikely to find the time needed to research Brazilian stocks until the opportunity to make money by doing so passes.
That’s sad, isn’t it?
Not really.
The reason why I don’t have time is that so much of my time today goes into building up my writing business. The potential payoff from that investment is more exciting than what is available from any non-customized investing choice. Never hesitate to pass up a sweet opportunity for an even sweeter one.
Comment #7: Shiller’s Brazil recommendation highlights one of the drawbacks of the rigid investing approach followed by indexing purists. The purists say to put everything in the S&P index and forget about it. The benefit of that approach is its simplicity. The downside is that simplicity comes at a price; there are rewards paid to those who shift their money to take advantage of changes in the investing realities.
Comment #8: Shiller’s Brazil recommendation does not suggest that indexing is a bad idea for most middle-class investors. So long as you are willing to acknowledge (it is denial of the realities that leads to an unhealthy rigidity) the reduced returns that follow from adoption of an indexing approach, pursuit of the simplicity of indexing makes all the sense in the world. Many investors don’t have the time or skill to be making well-informed shifts. Those investors are better off acknowledging that reality than making half-informed shifts, which can be costly indeed. Indexing is “the good enough investing choice,” in my assessment.
Comment #9: I continue to believe that Treasury Inflation-Protected Securities (TIPS), IBonds, and certificates of deposit (CDs) offer a strong value proposition today. The real-world returns provided are higher than the direct returns because each dollar of capital you can hold onto until U.S. stock prices fall will be providing a great long-term return when moved into U.S. stocks.
I get the sense that some investors would rather walk out of the house naked than invest most of their savings in something other than stocks. Those who lack the patience to wait for U.S. stock prices to return to reasonable levels might want to do some research on the idea of investing in Brazilian stocks. Given Shiller’s enthusiasm, it seems likely to me that this option is at least a not-entirely unreasonable one.
Comment #10: I hate it that the article contains a table showing year-to-date performance figures for the stock markets of various countries. I understand why it is there. I couldn’t suppress the desire to look at it myself. It teaches the wrong lessons, however.
Most of today’s investors brag of a long-term focus. The editors of the Wall Street Journal obviously are not yet convinced that we are entirely sincere in our professed belief that it is the long term that matters. Their skepticism is well-founded. We need to do better. And they need to do better at their assigned task of helping us to do better. More on This Topic
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June 12, 2007 10:15 – “Preach It, Brother!”
I’ve added a testimonial for my book Passion Saving by Janine Bolon, author of Money — Its Not Just for Rich People! to the Can I Get a Witness? page of the site.
Juicy Excerpt: Then I hit page 106 where you say something most important. “To be middle-class almost by definition means to be on a quest for more meaningful work.” Preach it, brother! That is the single greatest message we can deliver to folks trying to become wealthy. More on This Topic
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June 13, 2007 10:46 – The Questions Bogle Wasn’t Asked at the Vanguard Diehards Meeting
The Vanguard Diehards discussion-board community has an annual meeting at which Vanguard Founder Jack Bogle often speaks. The Retire Early community has in recent years discovered serious flaws in the approach to indexing recommended by Bogle. So I made plans back in February to attend this year’s meeting (I was at the time a long-time regular contributor to the Vanguard Diehards forum).
My announcement of that decision caused Mel Lindauer (one of The Three Authors of The Bogleheads Guide to Investing) to flip his lid. Lindauer changed the rules for attendance at the meeting, expressing a concern that Bogle needed “protection” from the sorts of questions about valuations that I frequently raised in my posts to the Vanguard Diehards board. I argued in response that Lindauer’s position represents a “dissing” of Bogle because it suggests that Bogle is unable to respond in a reasoned way to important questions about his investing recommendations.
Lindauer then urged community members to abandon the Vanguard Diehards board (moderated by Morningstar.com) for a new one at which two longtime Greaney Goons agreed to serve as moderators and at which I was banned before ever putting up a post. After hundreds of community members took him up on his offer, Morningstar.com banned me from the Vanguard Diehards board as well. Several other popular posters who at earlier times had raised serious and well-founded questions about valuations have been banned or effectively banned in the time since.
I think it would be fair to say at this point that Bogle’s treatment of the valuations question is the Achilles heal of the conventional approach to indexing. Research done in the Retire Early community in recent years shows that Bogle’s recommendation that indexers refrain from reducing their stock allocations in response to concerns over today’s price levels will likely cause billions of dollars of losses to middle-class investors in days to come, assuming that stocks perform in the future at least somewhat as they always have in the past.
An attendee at Bogle’s presentation has filed a report on it. I respond below, presuming that the report is reasonably accurate. In the event that I learn that it is not accurate, I will of course post a follow-up blog entry.
Here is the report on what Bogle said on the valuations topic:
“He noted that maybe six times in a lifetime the market is way over or under priced. ‘Markets make us want to do the wrong thing.’ He stated that he believed it was ok to change one’s allocation when one of these conditions happens (again very rarely) and suggested perhaps when the S&P PE is >=35. Today’s PE is around 18 and doesn’t warrant change.”
Here are my comments on this report:
He noted that maybe six times in a lifetime the market is way over or under priced.
What precisely does he recommend that indexers do at these six critically important times? Should they leave their stock allocation where it was when stocks were at reasonable prices and thereby allow their risk level to go wildly wrong or should they “Stay the Course” (a Bogle pet phrase) re their risk level by lowering their stock allocations or increasing their stock allocations to bring the risk level back where it is supposed to be?
“Markets make us want to do the wrong thing.”
That’s exactly right. Mr. Market is a manic depressive. If there is one thing the market is not, it is not efficient. It is the farthest thing from it imaginable. The fact that today there are so many investors (it is human investors who make up the market, of course) who believe that stocks are safe is one of the surest signs there could be that today they are frightfully dangerous.
He stated that he believed it was ok to change one’s allocation when one of these conditions happens
Bogle’s use of the word “okay” here is telling of where he is coming from on the question of the need to adjust one’s stock allocation at times of extreme valuations. Why does he suggest that it is only “okay” to make such an adjustment? Is it not mandatory that indexers seeking to Stay the Course re their risk levels make the necessary adjustments in their stock allocations?
(again very rarely)
Bogle said above that this change would be required perhaps six times in an investing lifetime. For many investors, six allocation changes in the course of an investing lifetime could come to one change every 10 years or so. The dollar loss that could be sustained from failing to make the changes when needed could well be in the hundreds of thousands of dollars per indexer, especially when the effect of compounding is taken into consideration (as it should be).
and suggested perhaps when the S&P PE is >=35. Today’s PE is around 18 and doesn’t warrant change.
Did anyone speak up and inform Bogle of the findings in the Retire Early community in recent years that P/E1 is a gravely flawed valuation assessment tool and that P/E10 is far more effective? Has he not informed himself of this? Is there some reason why our community has been able to learn things about investing that Bogle has not been able to learn?
These are the sorts of questions that truly “rational” investors [conventional indexers claim to be following a “rational” approach to investing) would be asking of Bogle if they attended a meeting at which he put forward the sorts of statements attributed to him above. These are the sorts of questions that I would have asked had I been permitted to attend the meeting.
We all lose when “experts” like Bogle are “protected” from hearing questions helping them to come to terms with the fundamental investing realities. The Vanguard Diehards community very much included. Lindauer very much included. Bogle very much included. More on This Topic
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June 14, 2007 11:40 – Air Conditioning — A Costly Convenience
If air conditioning had been widespread in the 1950s, the entire pop music genre known as “doo wop” would have been lost to us. Doo wop (groups of kids singing beautiful harmonies) was created by New York teenagers who “hung out” together outside of their houses during the hot summer months. Why were these kids not at home watching television? Because it was too darn hot to be inside in the days before air conditioning! Air conditioning added to our comfort in an important way, but at a price.
My mother is 90 years old. My father is dead. One of the things my mother needs most at this stage of her life is people to talk to. When I was growing up, the people living in the row houses of Northeast Philadelphia stayed out on the front steps talking nearly every night in the summer months. Now everyone stays inside in the comfort of the air conditioning. My mother would rather have long and aimless conversations with neighbors than cool air.
I’m one of those guys who likes the feel of air conditioning going full blast. I’m like a dog; I just stick my face in front of the cool air blowing out. But even a dog can see that there are two sides to this story. More on This Topic
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June 15, 2007 11:56 – Jack Bogle Started Out as a Little Boy
The last paragraph of my blog entry for Wednesday (“The Questions that Bogle Wasn’t Asked at the Vanguard Diehards Meeting”) contained the phrase “experts like Bogle.” I put quotation marks around the word “experts.” The suggestion was that I have doubts as to whether Bogle is properly referred to as an expert.
I hope you thought that was odd. Bogle is the founder of The Indexing Revolution, He gave us an approach to investing that radically transformed the project for millions of middle-class investors and increased their wealth by billions in the process of doing so. If Bogle isn’t an expert, who the heck is?
Maybe no one.
That’s the point.
Consider two sentences taken from the preface to Robert Shiller’s book Irrational Exuberance. Shiller said: “Most investors also seem to view the stock market as a force of nature unto itself. They do not fully realize that they themselves, as a group, determine the level of the market.”
To quote a phrase from the 60s, “heavy, man.”
Shiller’s entire book is summed up in those two sentences. The book is about the stock market. There have been thousands of books written about stocks; how is it that Shiller was able to come up with a fresh take? He didn’t write about the stocks themselves. He wrote about the second word in the two-word phrase “stock market.” He wrote about the people making up the market in which stock transactions are completed and their role in determining whether stocks offer a strong value proposition or not.
Stocks are owned by people, you see. It’s odd that no one noticed before this Shiller individual came on the scene. But that’s indeed pretty much the way things seem to have played out. It’s not just the stocks that matter, his research showed him. The people matter too. Stocks sometimes really are the best investment class for the long run and at other times they are not. It all depends on how much the people who own these stock thingies bid up or bid down their prices.
What a botheration!
Here we thought that folks like Bogle knew all about investing and it turns out that at best Bogle knows half the story, the boring half. Given what he said about valuations (the people side of investing) at the recent Vanguard Diehards meeting, I think it is fair to say that Bogle’s grasp of the more interesting half of the investing story is less than firm.
Bogle ain’t no investing expert.
Maybe Shiller isn’t either. Shiller has only written one book on the people side of the story. My guess is that he would acknowledge that it is not possible to report all that there is to know about the people side of investing in a single book. And Shiller doesn’t know all the non-people stuff that Bogle and so many others specialize in . So an argument could be made that Shiller too falls short of being a complete investing expert unto himself.
Mel Lindauer? John Greaney? If Bogle ain’t no expert and even Shiller is under question, these guys surely ain’t no investing experts. Not even close.
So why do they assert themselves to be experts in such authoritative terms? What inner drive is it that causes Lindauer and Greaney to insist that they and only they possess their special level of expertise in the investing field and that the hundreds of Retire Early community members who have dared to express a desire to share a few of their thoughts at discussion boards at which these individuals appear can shove sand?
It’s insecurity. I’m sure of it.
It’s not just that Lindauer and Greaney lack true expertise on the topic of investing. What makes it worse is that they know they lack it and they know how much they need to possess it. Investing matters. Mess up your investments and you mess up your Life Plan. But if you are only as smart as a Lindauer or a Greaney (or a Bogle), you’re almost sure to mess up your investments somewhere down the line. One day you wake up and feel a need to report to your partner: “Honey, We Forgot the People!” She responds: “Thanks a bunch for figuring that out now that we are hundreds of thousands down from where we need to be and too old to go back to work, you colossal jerk!”
She thinks better of it and apologizes for the “colossal” part. That wasn’t fair. She’s been through enough with you to know that you really are just the regular garden-variety brand of jerk.
Still, you really do end up poorer in your old age than you had expected to be in earlier days. Because you really did act like a colossal jerk in the investing area. Her not saying it doesn’t stop you from thinking it.
Bogle’s a jerk. The same goes for Lindauer. And for Greaney. Especially for Greaney.
Put me down as a jerk too, if you’ve been put in charge of keeping the official scorecard. I’m not putting quote marks around the word “expert” only as it applies to Jack Bogle. I’m doing that across the board.
We’re all jerks because wer’e all insecure and we’re all trying to figure out something that it is not possible for any of the humans to figure out completely as of June of 2007. We all suffer from Boy Disease (even Suze Orman, to some extent). We swing swords and yell out swear words to imaginary dragons because we know how much it hurts to skin our knees and we don’t want anyone to see us go running off crying to mommy again anytime real soon.
Jack Bogle started out as a little boy. That should tell you something about what sort of an investing expert he is. Plus, he forgot the people! That’s some amazing expertise he possesses, huh?
I listen to what Bogle has to say. I listen to what Shiller has to say. I listen to the bits of what Lindauer has to say that make sense. Heaven help us all, but there was a time when I listened to bits of what Greaney had to say. I listen to them all. I don’t want to be heard crying to mommy when my retirement goes bust. I don’t want to be telling my wife when we’re both too old to work that: “Honey, I Forgot the People!”
If there were a good number of true investing experts on the scene today, they wouldn’t have allowed us to get into this mess in the first place. True experts would have spoken up when stock prices first began getting seriously out of hand.
Bogle didn’t do it. Lindauer didn’t do it. Greaney didn’t do it. They’re not experts. They’re schoolboys. They’re learning.
Shiller? He’s the big brother. He read some of the books that the library lady won’t permit the rest of us to take home with us until we grow up some more. He cannot figure it all out on his own, however. Even Shiller needs some pals with whom to talk things over.
Those who shout out “I’m an expert and you’re not!” are suffering from Boy Disease. Those on the road to becoming men are smart enough to know how much they do not know. They give up their weekends to crack the books until they can figure out this newfangled people/valuations aspect of the question.
I started out as a little boy too.
I’m not an expert.
I’m working on it! I’m working on it! More on This Topic
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June 18, 2007 08:26 – Rob Bennett’s Favorite Saving Advice Sayings
I’ve added an article to the “Start Me Up” section of the site entitled Rob Bennett’s Favorite Saving Advice Sayings.
Juicy Excerpt: It’s human nature to complain about how tough we have it. There’s plenty to complain about in the modern world. I don’t think that those of us who live in the modern industrialized economies can rightly complain too much about our buying power, however. The increase in middle-class buying power is one of the most positive developments of the past century.
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June 19, 2007 12:36 – Taylor Larimore and the Monster Mistake That Ate Middle-Class Wealth
I’ve added an article to the “Heroes and Villains” section of the site entitled Taylor Larimore and the Monster Mistake That Ate Middle-Class Wealth.
Juicy Excerpt: Larimore did something very important in the words quoted above. He defined for us what he means when he uses the phrase “investing for the long-term.” Most defenders of the “Stocks for the Long Run” model fail to do this. They advise investing for the long term, but don’t say what that means. Is three years the long term? Five years? Ten Years? Fifteen years? What? Larimore suggests in the words quoted above that the 10-year mark is where the short-term ends and where the long-term begins.
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June 20, 2007 15:14 – You’re Smarter Than the Experts
There are two people who wrote about investing topics frequently addressed at this site in columns published today. One is Karthik Narayanaswamy, who writes the Karthik’s Random Ramblings blog. The other is Jonathan Clements, who writes the “Getting Going” column for The Wall Street Journal.
Guess which one of the two put forward words that are brave and caring and insightful? Guess which one of the two put forward words that are trite and dangerous and inaccurate?
Here’s Jonathan Clements:
“After years of debate, there’s an emerging consensus among financial advisers that retirees ought to use a 4 percent or 4.5 percent portfolio withdrawal rate.”
No mention that it is absurd to believe that there could ever be a single withdrawal rate that would make sense for all of the many circumstances that can apply for retirees. Can retirees who have large stock allocations safely plan on a 4 percent annual withdrawal? Or is it only those who were smart enough to lower their stock allocations when prices went to the moon and thereby to lock in the more appealing long-term returns now available from safer asset classes? Jonathan Clements doesn’t know. Or, if he knows, he isn’t telling. He leaves it to us to figure out those “details” on our own.
Here’s Karthik Narayanaswamy:
“By using a 10-year moving average of earnings for the P/E, Prof Robert Shiller of Yale, of Irrational Exuberance fame, shows that the P/E10 of the stock market is close to 30, the highest level with the exception of during the dot-com boom. The median value historically has been closer to 14. The value in 1982 at the start of the great bull market in stocks was under 6…. Valuations matter, and in an environment where real estate and stocks and longer-term bonds have been pushed up, the best an investor can do is to select a flexible bond fund or keep money in a short-term bond fund yielding about 5% until better options emerge.”
Jonathan Clements may possess more I.Q points than Karthik Narayanaswamy. I’m not so sure that’s so, but it could be so. No matter. Karthik is telling it straight about how long-term investing works. That’s what we need to know. The fellow who writes Karthik’s Random Ramblings is more of an expert where it matters to us than the fellow who writes for The Wall Street Journal.
Just last week, we saw John Bogle talking to the Vanguard Diehards meeting and making the elementary-school error of using P/E1 rather than P/E10 to determine whether stocks are dangerously overpriced today. Please note that the guy who writes Karthik’s Random Ramblings “gets” what John Bogle does not. Karthik Narayanaswamy is smarter where it counts than John Bogle too. This fellow must stay up late nights putting in extra reading time.
It’s a counterintuitive reality. You would expect the Big Fishes to know more than the Little Fish. It would take a lot of words to explain fully why it doesn’t work that way. The bottom line, though, is that The Wall Street Journal relies on advertising to pay the bills. I think it would be fair to say at this point that that reality compromises the coverage of investing realities you read in that newspaper (and in lots of others, to be sure).
Karthik Narayanaswamy is an amateur. He does what he does out of love. Love beats brains when the brains are compromised by the need to pacify advertisers (who in turn need to pacify investors, who have let their greed run out of control in bidding stock prices up to where they stand today).
Karthik says nice things about my web site and my calculators (and indirectly about the mind-blowing research of John Walter Russell that is the engine behind the calculators that John and I developed together) in his blog entry. So I am biased. It would be a good idea for you to subtract some credibility points from what I say here because of that. Still, the reality is that the Little Fish is making sense and the Big Fishes are not.
You can be your own investing expert. Learning about investing is like diving into a pool. It’s hard to force yourself to do it, but once you do, you wonder why you ever made such a fuss.
The alternative is to put your trust in the people who have gained reputations as “experts” during the wildest and most out-of-control bull market in the history of the United States. Not recommended.
You’re smarter than the experts. How do I know? Because you were smart enough to earn the money you are looking to invest. That means that you possess at least a little bit of common sense.
Plus, you don’t take advertising, you ethical little devil you.
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June 21, 2007 16:46 – Borrowed Bling
From one way of looking at it, borrowed bling makes all the sense in the world. The purpose of the sorts of items that constitute bling (jewelry, expensive cars) is to show off. It’s obviously a lot cheaper to borrow stuff to show off instead of buying it.
Also, this stuff quickly becomes boring. You can wear an expensive piece of jewelry once or ride in an expensive car once and then switch to something else the next time you go out to a big event. It makes it easier to keep up with trends.
Or to try out different personas. Renting bling lets you test a certain “look” before putting down the big money it would take to acquire it rather than just to rent it.
The downside is that, what we play at being, that is what in time we become. The modern world permits us to play at all sorts of things, so why choose playing at being rich or being a celebrity? Why not use a camcorder to play at being a director? Or use a computer game to play at building a city?
If you play at being wealthy or at being a celebrity, you are reaching in the wrong direction for lasting happiness. Sure, it’s just people having fun. The ways in which we choose to have fun do say something about us, however.
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June 22, 2007 16:49 – Live the Good Life and Avoid the Goons That Haunt It
I’ve added an article to the “The Self-Directed Life” section of the site entitled Live the Good Life and Avoid the Goons that Haunt It.
Juicy Excerpt: If we lived in a perfect world, people would look up to those living the good life and seek to emulate them. We don’t live in a perfect world. Live the good life and some are going to hate you. It’s called jealousy. It’s a depressing reality. It’s a reality all the same.
Don’t flaunt your wealth. Most of all, don’t flaunt your independence. Independence is more rare than wealth. It provokes more jealousy.
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June 25, 2007 11:19 – Money Is Cereal Business
People learn from talking things over with each other.
There’s a sense in which everyone knows this. When you’re trying to figure out whether the rash on your kid’s leg is something serious or whether little league is too competitive nowadays or whether Tom Cruise is a nutcase or whether the war is a good thing or whether Maine is a nice place to take a vacation, your first thought is to ask your friends. Your actions say that you place great credit in what can be learned from talking things over with other people.
There’s another sense in which everyone does not know this. If you took a poll, I bet that a lot of people would say that the way to learn things is to read books or take classes or listen to speeches given by experts. This is especially so in the money area. Money is cereal business. Deadly cereal. When it comes to money, people seek out Poobahs. They demand Credentials. The type of Poobahs that they want to consult with are Poobahs who demand to be taken cereally.
That’s not me. You might have noticed.
This came up at a thread at Greaney’s discussion board (not recommended) the other day. Here are some words that came out of me:
“I see it as one of the big flaws of the current personal finance literature that there is too much focus on being taken seriously. The stuffiness of much of what you see is a big-time turn-off to me.
“I want to help people (and be helped by them). I want to talk to people (and to have them talk to me). I want to make people laugh (and to be made to laugh by them). I want to educate people (and be educated by them). I want to inspire people (and be inspired by them).
“I see those as different sorts of goals than wanting to be taken seriously.”
I love books. All this business of having conversations with people wouldn’t work out so hot if none of the people participating in the conversations read books. You need to have some content on which to ground the conversations. If none of us ever read any books, we would probably end up grunting at each other rather than laughing with each other and inspiring each other. So the message that I am putting forward here is not an anti-book message.
The message is that we advance our understanding of what we read in books in important ways by talking it over amongst ourselves. After you have talked about a book, you understand it better. Talking is learning.
The internet opens up wonderful opportunities to advance our knowledge of how to put together successful Retire Early plans by talking things over with each other. In the old days, you could have read some books. But what were your chances of finding someone with whom to talk over what you read? Today, we have a means for doing this. That’s a big deal.
It changes what it means to be a personal finance expert. An expert isn’t anymore the person who has read the most books or the person who has attended the most classes or the person who has given the most speeches. Those things remain important. But there’s a new dimension to be considered. There’s this new expertise to be gained by talking things over with people pursuing the ultimate goal of learning about money management — financial freedom.
Our community is a learning community. We have learned things about personal finances that no one else had ever learned before we began talking things over amongst ourselves. How did we accomplish this amazing feat? We took advantage of a learning tool that was not available to those who came before us — the internet discussion board. We’re not necessarily smarter in the sense of having more I.Q. points. We do know things that the others don’t know, however. We’ve been working it from a different angle.
Stuffiness does not work on internet discussion boards. Cereal — is that a joke? Who wants to be taken cereal?
Things change. Not all changes are for the good. Some are. More on This Topic
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June 26, 2007 10:14 – The Criminal Underneath My Own Hat
Here are some words that came out of me during a recent conversation with the Goons that I believe are worthy of consideration by Normals:
“Bogle was right to say that he makes mistakes. He gets points with me for that. He loses points for not following up with sufficient vigor. He needs to be checking with people on that board (and elsewhere too, of course) to find out what his mistakes are. He needs to be sending a message to his followers that he doesn’t want people covering up his mistakes, he wants people bringing them to his attention. That’s the sort of thing I am trying to encourage.
“He should be looking within, trying to spot any signs of inner goonishness. It’s not just Bogle who should be doing this, of course. Greaney should be doing this. Lindauer should be doing this. Bernstein should be doing this. Anyone who offers money advice should be doing this. We all have sinful ways. We all should be performing examinations of conscience.
“Investing is not primarily a numbers game. Investing is primarily an emotions game. That’s the point.
“This examination-of-conscience business is not easy work. But it’s profitable work.”
Whenever someone promises to pay you big money for doing what appears to be little work, you should be asking questions as to what is really up. If a stranger says “just carry this paper bag for me onto the airplane and then deliver it to a friend of mine in the city to which you are traveling,” you need to check what’s in the bag before saying “yes.” Warren Buffett reminds us from time to time that someone who has been playing poker for 20 minutes and has not yet figured out who the patsy is may well himself or herself be the patsy.
Who’s the intended patsy for the huge bull market of the late 1990s?
They cannot force you to play the role of patsy. They need to entice you. This is done through flattery. Participants in Ponzi schemes always look smart before the bottom falls out. They are told that they are smart. They are told that that’s why so much unearned money has been directed their way. They are flattered. They are fattened for the kill.
If you possess a strong understanding of how stocks work, the attempts at flattery do not work. Knowledge of the fundamentals is your best defense. Knowledge of your own human weaknesses and of the power of flattery is your best defense.
Where did the money come from to finance the huge returns paid out during the late 1990s? If you know the answer to that one, you’re safe. If you don’t, you’re in trouble. I would go so far as to argue that, if you don’t know the answer to that one, you have no business investing in stocks at all. If you don’t know the answer to that one, you’re being set up to be the patsy.
Every time someone thinks he is smart to have bought a share of stock, someone else thinks he is smart to have sold one. Sometimes you have to wonder what those guys and gals on the other side of the transaction might know that you don’t. More on This Topic
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June 27, 2007 09:08 – Staying Young at Heart
I’ve added an article to the “The Self-Directed Life” section of the site entitled Staying Young at Heart.
Juicy Excerpt: We look back at youth as an idyllic time because we have a clear recollection of the ways in which it is easy to be young and a foggy recollection of the ways in which it is hard. We think: “If only I had the energy I had then.” Or: “If only I weighed what I weighed then.” Or: “If only I had the good health I had then.” We don’t often think: “If only I were as uncertain of myself as I was then.” Or: “If only I knew as little about how the world really works as I knew then.” Or: “If only I had as little judgment as I had then.”
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June 28, 2007 14:17 – Getting Fired — Something Dies and Something Is Born
I’ve added an article to the “Retire Different!” section of the site entitled Getting Fired — Something Dies and Something Is Born.
Juicy Excerpt: You got fired, you’re a loser. That’s what it means.That’s not actually so, of course. But you’re worried that people will think that, aren’t you? For good reason.
The reality is that few employees get fired. The reality is that many employees who should get fired do not get fired. What does that say about the ones who do? The ones who get the ax must really be something else, eh? More on This Topic
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June 29, 2007 13:01 – Give Up Television and Grow Rich
I’ve added an article to the “The Self-Directed Life” section of the site entitled Give Up Television and Grow Rich.
Juicy Excerpt: It takes you roughly an hour to eat breakfast, get showered and dressed for work. Another hour goes to eating lunch and dinner. You sleep eight hours. You exercise one hour. You read in bed an hour before going to sleep. Getting to work and back sets you back two hours. You put in close to 9 hours at the office on many days. What’s left? One hour.
That’s the hour you spend watching television.
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