How to Invest Using Valuation Informed Indexing – Interview with Rob Bennett

Buy and hold investing doesn’t have to be about tenaciously sticking with what you’ve picked no matter what happens. However, there’s an interesting twist on buy and hold investing called valuation informed indexing. While there is a bit of a battle going on between the advocates of buy and hold and those that favor valuation informed indexing, from an outsider standpoint, there are definite similarities between the two.

If you are concerned that buy and hold doesn’t quite fit your investing style and needs, but are afraid to wade into the waters of market timing, valuation informed indexing might not be a bad way to go.

Rob Bennett has been advocating valuation informed indexing for years, and his insistence on it has even had him kicked off investing forums, including the Bogleheads forum.

“Buy and hold is intellectually dead,” he says. “It’s not practically dead, since plenty of investors still use the theory, but intellectually it’s been dead for more than 30 years.”

Long-Term Market Timing

Bennett points out that the biggest pitfall of buy and hold is it doesn’t allow for any market timing at all. “It’s true that short-term market timing doesn’t work,” he says.

“Eugene Fama deserves the Nobel Prize [in Economics] for his work. His discovery was short-term market timing doesn’t work. However, his paper was written up saying market timing doesn’t work. They didn’t even look at long-term timing.”

So, what is long-term market timing?

Bennett says it’s possible to time the market over the long-term by looking at periods of 10 years. This is the basis on which valuation informed indexing is founded. Rather than just looking at short-term valuations — what a stock or an index is valued at now — valuation informed indexing is based on PE 10.

The concept of looking at long-term valuations was introduced by Benjamin Graham and David Dodd in Security Analysis. They suggested that a multi-year average of earnings per share should be used when evaluating which assets should be considered “value” investments.

Robert Shiller, another Nobel winner, suggested the time period should be 10 years, and he popularized the idea of PE 10, which is the average value over a 10-year period. PE 10 can then be expressed as a number. Between 1881 and November 2013, the ratio expressed by PE 10 has varied from 4.78 (December 1920) to 44.20 (December 1999).

Valuation informed indexing is a way to take PE 10 and use it to engage in long-term market timing. “PE 10 shows that valuations matter,” says Bennett. “As it goes up, so does the risk.” He points out that PE 10 provides insights into what could be coming. “If you look at overvaluation just before the dot com crash, and reduce it to dollar terms using PE 10, you would see that the market was overvalued by about $10 trillion.”

Understanding how that works can allow you to shift your assets. Bennett favors using index funds, since it prevents the need for stock picking, and you are working with large swaths of the market. When it appears that the PE 10 ratio is getting rather high, it’s time to sell your stock index funds (while you can get a decent price) and move your money into an index fund that follows a different asset class.

“The only real change from buy and hold,” Bennett says, “is that it is about staying the course, while valuation informed indexing is about making changes to manage your risk profile. I say to keep your risk profile constant, while buy and hold is about keeping your asset allocation constant.”

How to Use PE 10 in Valuation Informed Indexing

If you are interested in valuation informed indexing, Bennett suggests the following plan:

  • When the PE 10 value is below 18, a high stock allocation makes sense.
  • When PE 10 is between 19 and 22, Bennett says it’s time to shift to perhaps a 50 percent stock allocation.
  • And, when PE 10 gets above 22, he would drop to a 25 percent stock allocation.

As of this writing, the current PE 10 ratio (for the S&P 500) is 24.99. An economic crisis is considered imminent at a PE 10 ratio of 25.

Bennett says there are other rules of thumb you can use when guiding your investment policy using PE 10 and valuation informed indexing. “I worked with a professor who was at Princeton, Wade Pfau, and we found you can get better returns when you pay attention to valuation and invest accordingly,” Bennett says. “Try a 90 percent stock allocation when stocks are valued low, 60 percent when they are moderate, and 30 percent at high prices.”

These two different plans can be tweaked according to your own risk profile and needs, but the idea is essentially the same: Use index funds to put together an appropriately diverse portfolio, and then use PE 10 values to help you determine when it’s time to change your asset allocation.

“Buy and hold might say you keep it steady at 60 percent stocks, no matter what,” says Bennett. “But Pfau and I found that just by using valuations to adjust your allocation to keep your risk profile steady, we reduced risk by 70 percent and increased returns dramatically.”

So, What’s the Catch to Valuation Informed Indexing?

“You have to wait 10 years,” says Bennett. “It doesn’t happen in one year, or two years, or three years. It doesn’t work in the short-term. Think about Warren Buffett. He makes intelligent picks and they don’t always pay off immediately. This is the same idea. If you don’t have the patience to keep with it for 10 years, it’s not for you.”

Bennett is also quick to point out that your “10 years” starts from whenever you adjust your portfolio, since PE 10 looks at the average outcome for 10-year chunks of time. “When stocks are too overpriced and you put the money somewhere else, you have to wait 10 years for that decision to pay off,” he says.

That doesn’t mean that you doggedly stick to your decision for the next decade, though. Valuation informed indexing is about switching it up when it makes sense. “I suggest looking at PE 10 value every year,” Bennett says. “Make a change to your portfolio only if the PE 10 value changes dramatically. You don’t need to change it up for a difference of only one or two points.”

“Look at PE 10 today, and use it as a predictor,” he continues. “In most years, you won’t have to make any adjustment. However, since it’s an average, you might need to make a change two years in a row, or leave it for a long time. For example, from 1982 to 1996, you would never have needed to make a change.” Bennett has a number of tools on his web site, including a stock return predictor that uses PE 10, that can help you plan ahead.

“People plan their lives based on the amount in their portfolios today,” Bennett says. “When it falls, they get depressed.” Instead, he suggests investors take a longer term approach. Valuation informed indexing, based on PE 10, can help them do that.

What do you think of this strategy? Would you use it for your portfolio?

Make a Comment

Your Email address will not be published.


Notify me of followup comments via Email. You can also subscribe without commenting.

Reader Comments

  1. Sensible Investor says

    Rob suggests that with PE10 at 20.25 one should have a 50% stock allocation, and Rob’s kept a 100% bond allocation for the past 18 years including during years when PE10 was less than 10. I heard that he didn’t save enough for retirement but retired early anyways, and now relies on his wife’s income to get by. Bennett’s a fraud.

    • says

      Sensible “whatever your real name is” Investor — since I can’t respond to that forum that’s dedicated to just Rob I’ll make my comment here.

      I guess you and “DRiP Guy” have no life but to find anything about what Rob posts?? Rob did NOT pay and we do NOT do paid posts.

      Bottom line, get a life. Personal attacks will cause you to get banned. Though anything related to questioning Rob’s thesis is open game.

  2. Rob Bennett says

    This is Rob. I’m real. It is Sensible Investor who is a fraud.
    Here is one site where the Goons congregate to figure out what intimidation tactics they need to employ to keep millions of middle-class investors from learning what the last 32 years of peer-reviewed academic research in this field really says:

    Here’s another:
    Academic Researcher Wade Pfau is mentioned in the article. Wade has a Ph.D. in Economics from Princeton. Wade and I worked together for 16 months on research that we published in a peer-reviewed journal that shows that Valuation-Informed Indexing reduces the risk of stock investing by 70 percent while dramatically increasing returns. Wade told me that he has zero doubt that Valuation-informed Indexing is the real thing. Our work together is detailed in great depth at my web site. Wade spent a good bit of time trying to find a single study supporting the core belief of the Buy-and-Holders (that it is not necessary to consider price when buying stocks). He never found one. The response of the Goons when he reported on his findings at several discussion boards was to threaten to send defamatory e-mails to his employer in an effort to get him fired from his job.

    There are huge opportunities for bloggers with enough courage to take on the Goons and spread the word about Valuation-Informed Indexing to the millions of middle-class investors who very much want to learn about it (I had a big positive response to these ideas when I introduced them to a Motley Fool board back in 2002 and at many other boards and blogs in the years since). Wall Street does not want people learning about what the research says. That gives bloggers an opportunity to present powerfully important information that is today available to only a very few.

    This is going to explode following the next price crash. It is the pioneers who will obtain the greatest benefits. I am happy to help anyone who wants to get involved in spreading the word.


  3. Sensible Investor says

    Rob, please post proof of your assertion about those defamatory emails that you said that were sent to Wade’s employer. And please explain why you are giving advice that you refuse to live by. You have been out of stocks for the past 18 years. If you actually believed in the stuff you said in this interview you would be about 50% in stocks right now.

  4. Rob Bennett says

    Here’s an article that details the Wade Pfau story:

    I put up a response to you first post pointing you that it is you Goon who are the frauds, Sensible. That one has not yet gotten through moderation.


  5. Rob Bennett says

    And please explain why you are giving advice that you refuse to live by. You have been out of stocks for the past 18 years. If you actually believed in the stuff you said in this interview you would be about 50% in stocks right now.

    I’ll start by noting that these words are put forward in the argumentative tone that has been typical of you Goons for 11 years now, Sensible. Iy you develop a desire to learn, you will be able to learn. If you permit your feelings of anger and hate to control you, you waste everyone’s time spewing venom.

    I of course explained to Miranda that there is no one allocation that applies for everyone in Valuation-Informed Indexing any more than there is one allocation that applies for everyone in Buy-and-Hold. She didn’t quote every caveat because with normal people it is not necessary to do so. This sort of thing becomes a problem only with people of bad intent, the sorts that I refer to as “Goons.”

    I don’t know where you get the 50 percent thing from. The percentage cited in the article is 25 percent. My personal circumstances are such that a somewhat small stock allocation makes sense. So, yes, I am zero. But most people want to know what they should do, not what I do. The typical investor should be somewhere near 25 percent stocks today, according to the last 32 years of peer-reviewed academic research in this field.

    You are right that I have been at zero stocks since the Summer of 1996. It is true that many find that shocking. I suggest that those who find it shocking take the time to check the numbers. TIPS and IBonds paying 4 percent real were available in earlier days and those who knew what the research in this field really says took advantage of them. I am AHEAD of the Buy-and-Holders by a small amount over those 17 years. Stocks are today priced for a 65 percent price drop. I will be MUCH farther ahead following that crash. And then I will enjoy decades of compounding returns on the differential.

    So what’s the downside here. VII is virtually risk-free investing. The research that Wade and I had published in a peer-reviewed journal shows that VII reduces the risk of stock investing by 70 percent while increasing returns DRAMATICALLY, by enough to retire five to ten years sooner.

    And your reaction is — Blind rage at the person who brought this to your attention.

    That’s emotion talking, Sensible. That’s all it is. There is no case that can be made for Buy-and-Hold in the year 2013. Over the course of 140 years, it has never once delivered good results in the long term. That’s because it cannot. Ignoring price is the worst mistake you can make when buying stocks, just as it is the worst mistake you can make when buying anything else.

    We all should be working together to get the word out to the millions of middle-class investors who need to hear it if we are to overcome the economic crisis that was brought to us through the reckless and relentless and ruthless promotion of Buy-and-Hold strategies.

    The historical return data is our friend. Our most base negative emotions are not.


  6. Rob Bennett says

    I’d like to hear Larry’s and Miranda’s reactions to the comments made about this article at the Goon Central Board and at the Early Retirement Forum. The first comment at the Early Retirement Forum is by a guy who has an obvious interest in learning about the subject matter. The following comments make it known to him that he will be ostracized if he continues to show interest in this important topic.

    Do we approve of that sort of behavior in the Personal Finance Blogosphere. Do we feel a responsibility to protect our readers from it?

    Kevin Mercandante writes for this site. Kevin recently deleted SCORES of Goon posts from a discussion held at his site. He can explain to anyone who cares to know about it the nature of the problem here.

    Joe Taxpaper recently called the Goons out on their nonsense at his site.

    As the Buy-and-Hold Crisis worsens, more and more people are reaching the point where they can tolerate no more abusiveness. When we honor the promise we make to ourselves and our readers in the published posting rules that apply at every board and blog, we all will begin moving forward together. This is the most positive story we have seen in personal finance in any of our lifetimes. We make a terrible mistake to let the lowest of the low among us try to turn it into something nasty and dirty.

    That’s my sincere take re this important matter in any event.

    • says

      I approve comments that make legit counterpoints. I do not know the full history with Early Retirement Forum, nor do I personally care.

      His comment is a legit question (though the personal attack is not). If the commentator does not keep it on topic, he will be banned and comments removed (same applies to you also).

      Otherwise I do not moderate and allow each to have their own opinion.

  7. Rob Bennett says

    I agree with you that the Goons sometimes ask legitimate questions, Larry. If you look at my blog , you will see that I permit the Goons to post there. A LOT. One of the reasons is that they do sometimes present legitimate questions that we all can learn from (especially me — I obviously need to hear challenges to my thinking). I have two hour-long podcasts at my site that were inspired by questions posed by the Goons.

    The Goons really do follow Buy-and-Hold strategies. They post lots of insincere stuff. But they do themselves follow the strategies they recommend to others. That’s one test of sincerity.

    So it is not my position that the Goons should not be permitted to participate in discussions in any way, shape or form. They are part of what it going on and to fully understand all of what is going on, we need to understand what drives the Goons. That’s part of the story.

    All that said, I think there is a problem if no one comments on their tactics. That fellow at Early Retirement Forum deserved to b able to engage in civil and reasoned discussion. We all miss out when the board is intimidated by a few insanely nasty personalities. I DO care greatly about the Early Retirement Forum. I spent years of my life building it up. There are hundreds of wonderful people there who would like to be having very different sorts of discussions. That board was once a great learning resource for everyone in the Retire Early Community and it is obviously not that today and that is a very, very unfortunate reality in my assessment.

    My sense is that you are saying that you don’t want to be the one to comment on these sorts of things because you are the site owner and moderator here. That makes some sense. I hope others will feel encouraged to comment on these process issues. There have been thousands of people who have expressed a desire that honest posting be permitted. I have spoken to lots of professionals in this field who would like to talk openly about their real beliefs about how stock investing works but who do not feel safe doing so because of what they have seen from the Goons. The economic crisis hurts us all. So we are all being hurt by the reluctance of these many smart people to speak out.

    The overlying reality here is is that we are in the transition years from Buy-and-Hold to Valuation-Informed Indexing. All of the evidence now goes in one direction. But it has been difficult to make this change because lots of smart people once really believed in Buy-and-Hold and those people built careers around their promotion of it. The tactics we see from the Goons reveal the desperate nature of the effort to “defend” Buy-and-Hold at this late date, over 30 years from the day the peer-reviewed research discrediting it was published. It may be that you should not comment on these issues in this thread but I very much think it would be a plus if you commented on them in a separate article at some later date. The process issue here is a big issue.

    The difference between Buy-and-Hold and Valuation-Informed Indexing is that Buy-and-Hoid ignores investor emotion while Valuation-Informed Indexing takes investor emotion into account. Part of the transition we need to make as a society is in coming to understand that we must talk openly about not just the numbers of investing but also the emotions of investing. Pretty much all of us are uncomfortable about it today because with Buy-and-Hold emotions were just presumed not to matter. For 11 years now, we have been seeing emotions evidence themselves, often in very juvenile and destructive ways. That’s an investing issue. Investor emotions are an investing issue. It wouldn’t be too much of an exaggeration for me to say that that is the core point of the entire VII project.

    Anyway, I am grateful to Miranda for conducting the interview and writing it up and to you for hosting her article. Anything that gets these ideas out before more people is a plus. If there are any others who would like to comment on the emotionalism we have been seeing from our Goon friends, I hope that they will feel encouraged to speak up. When they put it on display at a public forum, it becomes a legitimate issue for all of us to comment on.


  8. Rob Bennett says

    Bottom line, get a life. Personal attacks will cause you to get banned. Though anything related to questioning Rob’s thesis is open game.

    Thanks for saying that, Larry. That helps us all by drawing the line in precisely the right place. It becomes impossible for anyone to follow the discussions when there are no lines whatsoever. I of course LOVE to hear questions and comments and challenges about the actual investing ideas, which I acknowledge are new and somewhat counter-intutive for many good and smart people.


  9. Bob Smith says

    Just a few comments. I have searched at have not found any track record for value informed indexing. We can all look at historical results and say that if we happened to have traded a certain way, we would have beaten the market. To implement this strategy, one would have to make the decision to actually do it (making timing key) without emotions causing second guessing. As best as I can see, we do not see any fund with a track record actually implementing the trading at certain set points along with the burdening of trading expenses. Basically, no track record.

    The second point is that I strong disagree that buy and hold is intellectually dead. Making such a statement immediately causes me to discredit the person making the comment and gives the appearance that they have an agenda. We can see many examples of portfolios that are described as “buy and hold” that have been extremely successful over the long term, keep expenses low, and are easy for people to follow without having to second guess themselves after the timing of a trade.

    Third, in reading the follow up comments, I note that Rob believes that buy and hold is emotionally based. That is actually the opposite of the truth. The idea of buy and hold is to not let emotions take over investing decisions. It is setting an allocation and making adjustments to the allocations according to your plan (described in detail on the bogleheads forum). In fact, it is market timing strategies that seem to be more focused on emotions.

    Fourth, I am curious as to why Rob believes that people should follow this strategy, but then doesn’t follow it himself. The “do as I say, but not as I do”.

  10. Rob Bennett says

    I was a Buy-and-Holder myself until the evening of August 27, 2002.

    I was a regular poster at the Motley Fool’s Retire Early board for several years. There was a poster there named John Greaney who on a daily basis pushed a retirement study of his that claimed that the safe withdrawal rate is always 4 percent. That didn’t seem possible to me. I had read a statement in Jack Bogle’s book in which he says that Return to the Mean is an “Iron Law” of stock investing. If that is so, then the SWR MUST vary in response to changes in the valuation level that applies on the day the retirement begins. It is a logical impossibility that the SWR could be the same number at all times.

    At the time I said this, a number of Buy-and-Holders said that I must have forgotten to take my meds. In the 11 years since, my claim about the errors in the Old School sSWR studies has been confirmed by the Wall Street Journal, the Economist, Smart Money and at least a dozen other top-notch publications. Are we to believe that all these publications are engaged in a conspiracy to make John Greaney look bad? Greaney made a critical error in his study. It is as simple and complicated as that.

    There was a group at the Motley Fool board that was thrilled to be having this discussion. People were telling me on a daily basis that “I have had doubts about the Old School SWR studies for years, I just couldn’t put my finger on what was wrong with them — Thanks for helping us all out, man!” Greaney was not pleased. On the night of August 27, 2002, he put forward a post threatening to kill my wife and children if I continued to cross him by posting honestly on the SWR issue. Greaney has been the leader of the Campaign of Terror against our board and blog communities for the 11 years since.

    Now —

    Forget Greaney. Let’s say that he is just some nutcase who was embarrassed to have been discovered to have gotten a number wrong in a study and who freaked out when the community showed such a great interest in learning the realities of SWRs. It is the next part that is the really big deal.

    Greaney and I both continued to post. Motley Fool had a system where community members could recommend posts. We of course received different recommendation counts for different posts. But my recollection is that the most recs I ever got in the SWR discussions was about 50. The most Greaney got was 200.

    I e-mailed the site administrator and told him about the death threats. The response was that “it would be ideal if Greaney were to permit honest posting.” The site administrator was looking at those rec counts. He saw that Greaney was more popular and he elected to side with him because it is by siding with the popular guy that you make a buck.

    But it ain’t science when you play it that way.

    Buy-and-Hold is 100 percent emotionalism. There is zero intellectual content to it. If there were, every investor alive would want to know the accurate safe withdrawal rate numbers. It’s not hard to check whether Greaney’s study contains a valuation adjustment or not. The study is on the internet. Anyone who cares to can check. In fact, if you ask him nice, I think Greaney himself would acknowledge that the study contains no valuation adjustment. So there is no debate here. We are talking about the calculation of a number.

    The number you get when you use an analytically valid methodology (one that adjusts for the effect of valuations) for retirements that began in the Year 2000 is 1.6 percent real. For a retiree with a portfolio of $1 million, that’s the difference between withdrawing $40,000 every year to live on and withdrawing $16,000 every year to live on. That’s a difference in the withdrawal amount of $24,000. Not once. It’s $24,000 every year for 30 years running. That’s how far off the mark the Old School numbers are.

    What the heck is the debate? Anyone who is even a tiny bit rational knows that getting the numbers you use to plan your retirement right is important. And anyone who looks at the Old School studies can see that they do not contain valuation adjustments. And anyone who does the math sees that including valuations makes a huge difference.

    The Buy-and-Holders do not want to know the correct numbers. It drives them insane to hear the correct numbers.

    The Wall Street Journal has published several articles saying that the Old School studies got the numbers wrong. But you know what? Greaney to this day has STILL not corrected his study! Huh>

    If you don’t want to know the correct SWR numbers, you shouldn’t be looking at SWR studies at all. Buy-and-Hold is for people who want to PRETEND to follow research-based strategies but who also want to count all of the phony gains they earn in insane bull markets as real. Thousands of people at Motley Fool used Greaney’s study to plan their retirements. Those people will be left homeless in coming years, in the event that stocks continue to perform in the future anything at all as they always have in the past. And you don’t care. And you tell me that that is not emotion talking?

    It’s pure emotion.

    If you are going to use numbers to form your investing strategies, you should want to use ACCURATE numbers. The accurate studies show that a retirement plan calling for a 4 percent withdrawal that began in 2000 has only a 30 percent chance of surviving 30 years. Do you know what Greaney says in his study? He says that a 4 percent withdrawal is “100 percent safe.” Is that reason or emotion talking?

    Buy-and-Hold is pure emotion, nothing else. It is because of the relentless promotion of Buy-and-Hold strategies that we are in an economic crisis today. Shiller predicted the economic crisis. How do you think he knew? He added up the numbers. Stock were overvalued by $12 trillion in 2000. Shiller’s research shows that all “gains” caused by overvaluation disappear over the course of about 10 years. So he knew in 2000 that by the end of the first decade of the 21st Century we would be seeing $12 trillion in buying power disappear from our economy. When that much money disappears, hundreds of thousands of businesses fail. When hundreds of thousands of businesses fail, millions of workers lose their jobs. There has never been an “idea” in the history of personal finance that has caused as much human suffering as this idea that the Buy-and-Holders push that it is okay if investors do not consider price when setting their stock allocations.

    Death threats and science do not go together, Bob. When the time comes that an “idea” can only be defended through the use of death threats, that idea is intellectually bankrupt. There is no “there” there in Buy-and-Hold. Investors MUST change their stock allocations in response to big shifts in valuation levels to have any hope whatsoever of keeping their risk profiles constant.

    Those are my sincere beliefs re this terribly important matter, in any event.


  11. Bob Smith says


    I am not interested in any petty fights you might have with those you describe above as “goons” or other nonsense. To your suggestion to Larry and Miranda about checking into the sites you mentioned, I took a quick look. It seems you dish out your own threats and digs and I have no interest in getting caught up in the mudslinging.

    You can repeat all you want about your dislike for buy and hold, but your comments are flat our wrong. The fact remains that there have been MANY successful portfolios with long term track records of superior performance. It has personally worked extremely well for me. I am always open to considering other options when presented with factual based information that has actually been put into practice with a track record that can be fairly judged. In considering your proposed valuation informed indexing, I am not aware of any fund that has implemented this strategy so that we can judge if it can actually be put into practical use and to also see how it stacks up when fully burdened with the trading expenses. Please correct me if there is such a fund with a track record. At a minimum, I would have expected that you would have followed your own advice and traded this way and, therefore, could show your own results.

  12. Rob Bennett says

    There’s nothing “petty” about the 11-year Campaign of Terror against our board and blog communities led my Mel Linduaer and John Greaney, Bob. Shiller told us in his book that the continued promotion of Buy-and-Hold was going to put us in an economic crisis. Here were are. There are millions of people suffering because of this 11-year cover-up.

    Please understand that it is not just a mistake we are talking about there. The belief in Buy-and-Hold is a mistake. That part is at least on the right side of the line. Death threats are not on the right side of the line. Unjustified board bannings are not on the right side of the line. Tens of thousands of acts of defamation are not on the right side of the line. Threats to get academic researchers fired from their jobs are not on the right side of the line. That’s financial fraud. That’s a felony. That’s prison time. A good number of our fellow community members will be going to prison following the next price crash for the role they played in maintaining the 11-year cover-up.. Those of us who fail to speak up are playing a role in bringing about that result. Not this boy.

    The “fund” that has a long track record showing the vast superiority of Valuation-Informed Indexing to Buy-and-Hold goes by the name “The U.S. Stock Market.” We have records going back 140 years. I think it would be fair to say that you won’t find too many “funds” with as long a track record.

    Wade Pfau is an academic researcher who holds a Ph.D. in Economics from Princeton. He and I worked together for 16 months co-authoring research showing the superiority of Valuation-Informed Indexing. I think it would be fair to say that our research paper is the most important paper that has been published in this field in the past 30 years. As I was teaching Wade about VII, he was sending me back e-mails tellings me that he was so excited to finally be learning how stock investing works that he couldn’t sleep at night. He had visions of our research being published in the Journal of Finance and winning us the Nobel Prize in Economics.

    Here are some comments that Wade made in the e-mails he sent me during that time:

    1) “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach [New School safe-withdrawal-rate research.”

    2) “Are you aware of Shiller offering asset allocation advice based on P/E10? If you read Rob Bennett’s stuff carefully, I think he did provide an important contribution in terms of describing a way for P/E10 to guide asset allocation for long-term conservative investors. I also think he was right on the issue of safe withdrawal rates.” [This comment was put to the Bogleheads Forum discussion board).

    3) “I am also extremely grateful to Rob Bennett for motivating this topic and contributing his expertise and encouragement.” [These words appeared in the Acknowledgments section of one of Wade’s research papers]”

    4) “You deserve much of the credit as the whole idea of Valuation-Informed Indexing belongs to you.”

    5) “I definitely need to cite some of your work as the founder of Valuation-Informed Indexing as I have not found anyone else who can lay claim to that. Shiller pointed out the predictive power of P/E10 but never discussed how to incorporate it into asset allocation, as far as I know.”

    6) “What you see in the top part of the graph for each year is the amount of wealth accumulated after 30 years for someone following Buy-and-Hold against someone following Valuation-Informed Indexing. Valuation-Informed Indexing provides more wealth for 102 of the 110 rolling 30-year periods, while Buy-and-HOld did better in 8 of the periods.”

    7) “I will take steps in my final paper to test a wide variety of assumptions about asset allocation, valuation-based decision rules, whether the period is 10, 20, 30 or 40 years, lump-sum vs. dollar-cost averaging, and so on, and to show that the results are quite robust to changes in any of these assumptions.”

    8) “Any data mining that I am doing is in favor of Buy-and-Hold, not in favor of market timing.”

    9) “The findings for market timing are so robust anyway that it hardly matters how we do it.”

    10) “The maximum drawdown from market timing is much less. That is how far the portfolio drops from the past highs to the current lows. The Buy-and-Holder once experienced a 60.96 percent drop, whereas the worst drop for market timing was 24. 16 percent.:”

    11) “Market timing provides significantly higher returns at a comparable level of risk.”

    12) “The market timer enjoys a far less risky strategy.”

    13) “If everyone increased exposure after a market fall and vice versa, then this would dampen out the big swings in the market aggregates and we might get shallower boom/bust cycles.”

    14) “Yes, Virginia, Valuation-Informed Indexing works!”

    15) “I am quite excited about the findings so far. As you say in the podcast, Valuation-Informed Indexing should beat Buy-and-Hold about 90 percent of the time and I am getting results that support this for various strategies.”

    16) “Now that I am accounting for risk, I am even more amazed by how well Valuation-Informed Indexing works.”

    17) I have been toying with the idea of sending the paper to the Journal of Finance, which is the most prestigious journal in academic finance.”

    18) “My idea is to show many different tables with results over the whole period for returns and risks. Valuation-Informed Indexing always provides more returns for often less risk.”

    19) “No matter what I try, Valuation-Informed Indexing will still perform better in 85%-95% of cases for 30 years.”

    20) “The traditional approach to retirement planning (as described on pages 10 and 11 of The Bogleheads’s Guide to Retirement Planning, for example) is counterproductive and possibly damaging.”

    21) “Retirees now frequently base their retirement decisions on the portfolio success rates found in research such as the Trinity study. This is not the information that current and prospective retirees need for making their withdrawal rate decisions.”

    22) “Though I was only trying to do an Old School safe-withdrawal-rate study, all that I ended up doing was showing in a different way what you had been saying all along: the safe withdrawal rate changes with valuations.”

    23) “Valuations are the driving factor.”

    24) “Naturally, I am finding that Valuation-Informed Indexing can allow you to reach a wealth target with a lower savings rate, use a higher withdrawal rate, and also have a lower “safe” savings rate, than a fixed allocation.”

    25) “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.” [Wade was here referring to the Bogleheads Forum discussion board]

    26) “I think I should stay publicly quiet for awhile, as I really don’t want anyone sending messages about any topics to official at my university.” [Wade was here referring to the threat made by the Greaney Goons to send defamatory e-mails to his employer in an effort to get him fired from his job.]

    27) “I didn’t want them [the Greaney Goons] working behind the scenes to derail me.”

    28) “I did warn the editor of the Journal of Financing Planning that they may receive some hate mail after I mentioned your name in the safe savings rate paper.”

    That’s a nice bunch of guys that you run around with, Bob.

    I wish you all the best that this life has to offer a person, my old friend.


  13. Bob Smith says


    As I have said before, I am not interested in your petty fights (yes, they are petty fights) and all one needs to do is look through your links to see silly behavior on both sides (which you also do your part). It seems that you have some emotional axe to grind and I really don’t want any part of it. The prison talk is just way over the line.

    Let’s please focus on the topic.

    The US Stock Market is not a fund tied to your strategy. If that was the case, you would be a buy and holder of something like the TSM fund. What you are saying is that you time the market based on PE. Show us a fund that is trading under this strategy as you present. Show us a track record of where someone buys and sells the market based on PE so that we can see it put into practical use and can evaluate the outcome, along with the associated trading costs.

    As to your continued bashing of buy and hold, you are still wrong. We have all seen a number of very successful strategies under what you describe as buy and hold (which has worked for me). If you have trouble finding these strategies, I would be happy to give you that data.

    Rob, please be prepared to back up your comments with actually facts, otherwise, it seems to be a huge waste of time.

  14. Rob Bennett says

    The prison talk is not even a tiny bit over the line, Bob. I have a responsibility here to let my Buy-and-Hold friends know what is coming. There was at time when people said I was off my meds to say that the Old School safe-withdrawal-rate studies were wildly off the mark. You don’t hear anyone saying that today, now that the Wall Street Journal and the Economist and all these other publications have confirmed that I was right all along.

    Buy-and-Hold started out as a wonderful thing. There is no one on Planet Earth who has stronger words of praise to offer to the Buy-and-Hold Pioneers than Rob Bennett. The key breakthrough is that the Buy-and-Holders said that investing strategies should be rooted in what the peer-reviewed academic research tells us about how stock investing works. That’s what I believe. I am more in tune with the original Buy-and-Hold mission than John Bogle or any of the others who advocate Buy-and-Hold strategies today.

    Part of any research-based project is ADMITTING MISTAKES. The problem we have with Buy-and-Hold is that it is rooted in a mistake and the mistake has not been corrected in the 32 years since it was discovered. The premise of the entire model is that timing is not required or doesn’t work or some such thing. THERE IS ZERO EVIDENCE IN THE RECORD SUPPORTING THIS CLAIM.

    What happened is that there was research published showing that short-term timing doesn’t work. That research checked out. I rank that finding as the second most important in the history of investing analysis. We have the Buy-and-Hold Pioneers to thank for it. I have thanked them publicly on hundreds of occasions for bringing forward that insight.

    The mistake that caused our economic crisis is that the Buy-and-Hold Pioneers JUMPED TO THE HASTY CONCLUSION that it is ALL forms of market timing that do not work. Nothing could be further from the truth, according to the 140 years of historical data available to us today. Long-term timing has ALWAYS worked. Long-term timing has ALWAYS been 100 percent required for any investor hoping to have a realistic chance of long-term investing success.

    The Buy-and-Holders are wrong re this point, as wrong as wrong can be. To fail to engage in long-term timing is to fail to exercise price discipline in your purchases of stock. It is price discipline that makes markets work. Without price discipline, a market collapses. Look around you. It is because this error has not been corrected for the 32 years since it was discovered that there are million of people unemployed today and millions of people on their way to experiencing failed retirements.

    You say over and over that Buy-and-Hold has worked for you. We are priced today for a crash that will bring about a loss of 65 percent of market value. Have you factored that into your calculations? I know that you have not. When you factor that in, you will see that Buy-and-Hold has not worked for you or anyone else. I am not saying that there can never be times when it APPEARS that Buy-and-Hold is working. There were times when the Bernie Madoff fund appeared to be working. The trouble with Ponzi schemes is that they always collapse in the long run. Shiller properly identified an insanely overvalued stock market as a Ponzi scheme in his book. There is now 32 years of peer-reviewed academic research showing this to be the case. There is no intellectual dispute, only an emotional one.

    I have spoken to thousands of ordinary middle-class investors about VII. The most common response that I have heard is: “Rob, everything you say about stock investing makes perfect sense. I ALWAYS look at price when buying anything else, why not stocks? But there’s one thing I don’t get. Why aren’t all the experts saying what you say?”

    Every industry would like us to believe that the product they sell is worth buying at any price. No other industry has been able to get away with such a crazy claim. The difference with the stock-selling industry is that lots of us are intimidated by stock investing. We think it is too complicated to understand. So we turn to experts, who just happen to make their living selling stocks. These are the most biased people we could possibly turn to for advice. And, sure enough, lots of them say that they think Buy-and-Hold might somehow work despite the 32 years of peer-reviewed academic research showing otherwise.

    We need to hear people in this field giving HONEST accounts of what the academic research says. I have tried. You have seen the reaction I have seen — a huge positive response from thousands of middle-class investors who want to learn the truth about stock investing and a burning hate from those who want to “defend” Buy-and-Hold despite the 32 years of peer-reviewed academic research. John Walter Russell tried. He gave us eight years of his life doing research that reveals the realities, never once asking for a dime in compensation. Your Goon friends laughed on the day he died, they thought that was the funniest thing that had ever happened. Wade Pfau tried. Wade has two small children to support and he didn’t feel that he could give up his means of earning a living as part of his effort to publish honest research.

    We should be celebrating Wade today. We should all be working together to see that the research that he and I prepared together gets written up on the front page of the Wall Street Journal and the New York Times. That research paper is Nobel-prize worthy stuff. Wade should not have to cower in fear because he spent 16 months of his life developing the most important research paper published in this field in the past 32 years. John Greaney should have corrected his study within 24 hours of the time he learned of the errors in it. And when he didn’t, we all should have INSISTED that he do so. If we had done the right thing then, we wouldn’t be in the horrible place that we all are in today,.

    There were people who knew that Madoff’s fund was a fraud long before he went to jail. Those people were laughed at. Today, Madoff is in prison. People don’t get upset by Pionzi schemes during the days when they appear to the people invested in them to be supplying good results. People go to prison when the losses come and when people get angry because their lives have been destroyed.

    We don’t get second chances to fund our retirement accounts. We have wasted 11 years discussing whether honest posting should be permitted on our boards and blogs or not. The question is foolish. OF COURSE honest posting should be permitted. OF COURSE Greaney should have corrected his study within 24 hours of the time he learned of the errors in it. OF COURSE Wade and thousands of other academic researchers should be permitted to provide us with honest research. OF COURSE there is no place for death threats or unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs in discussions of what works in stock investing.

    I am your friend, Bob. You don’t see it. You hate me with a burning hate. But a person doesn’t evidence friendship by telling you what you want to hear. A person evidences friendship by telling you what you ever much need to hear but what you very much do not want to hear.

    That’s my sincere take re this terribly important matter, in any event. I naturally wish you the best of luck in all your future endeavors, my old friend.


  15. Bob Smith says


    That is just one big mess of a rambling response. The two points I have been TRYING to discuss (staying on topic) is what appears to be a lack of a fund or other track record that shows your suggested strategy actually having real world results. Since you have not offered up anything and you don’t personally invest in this way, I guess I will have to assume that this strategy has not been put into practical use with long term results that we can examine. The second point was one your repeated claims of buy and hold (staying the course) is inferior. As I have said in my replies, that is just plain wrong and we have seen plenty of examples of strategies that have worked very well. In your latest response, it SEEMS that what you are now saying that those of us that have followed this strategy have done well, but it is YOUR opinion that we are overvalued by 65%. Again, that is just plain nonsense.

    Now, as to all your other topics that YOU wanted to raise, I did you the courtesy of spending part of my day searching out your claims and all I can say is WOW. I don’t want to get down in the mud, so I will avoid all the details and just give you my personal suggestion of getting some kind of help/counseling.

  16. Rob Bennett says

    It’s not just my opinion that the market is priced today for a 65 percent crash. That’s what the last 32 years of peer-reviewed academic research shows. If there weren’t people who were emotionally addicted to Buy-and-Hold and who became anxious to hear what the research says, you would know all about this as it would be discussed every day at every board and blog on the internet.

    All secular bull markets become secular bear markets. There has never been a single exception. All bear markets end when stock prices fall to one-half of fair value. That’s a P/E10 value of 8. That’s 65 percent down from where we are today.

    Is it possible that this will be the first time in history when a secular bear will end before we get to a P/E10 level of 8? I guess. It’s possible that the moon is made of green cheese, you know? But I am not going to bet my retirement money on the possibility. If this bear market continues until we get to a P/E10 level of 8, we will be seeing a price drop of 65 percent sometime within the next few years. That’s just math. And, no, you won’t be saying that Buy-and-Hold “worked” for you when that happens.

    You follow Buy-and-Hold strategies. I don’t doubt that for two seconds. To that extent, I can say that you really do believe in Buy-and-Hold. But you do not possess an inner confidence. If you did, nothing I said would bother you. Say that I am 100 percent wrong in everything I say. Why would that bother you if you believed deep-down that there is research supporting Buy-and-Hold? Why would you say that I need counseling if you had an inner confidence in your strategy? If you possessed confidence, it would be possible for you to see me as a friend.

    You don’t have it, Bob. All of the evidence shows that. You are hurting yourself and you are hurting others. Not because you are not smart. You are plenty smart. You are hurting yourself and others because you just cannot bear to hear evidence that you have made a terrible mistake.

    The reason why stocks are so insanely overpriced today is that there are millions of people who think as you do. There are millions who feel that their lives are riding on Buy-and-Hold and who hold inner doubts and who cannot stand to have others voice doubts that bring our their anxieties.

    There are lots of people who would like to help. I have spoken to many people who have told me, some publicly and some only privately, that they would love to be able to tell people the truth about how stock investing works but that they do not dare to do so until after the next crash. I think those people are wrong to wait. They may be doing what is in their own personal best interests. But they are letting down their friends and neighbors and co-workers and fellow community members by not saying exactly what they believe in clear and firm and simple language. It’s hard to take all the abuse. It’s not fun. But I think that is the job here. We have to act in love. In this case the loving thing is to take on that abuse and to just keep trying to touch people’s hearts and minds. The job is to help people understand the realities. Not to attack them. Not to make them feel small for having made a mistake. Not to call them names or make them feel dumb. But to present the realities to them in as effective a way as possible in an effort to bring them around.

    You say that I need help/counseling. Rob Arnott is one of the biggest names in this field. He served as the editor of the Journal of Financial Planning. After learning about the materials at my site, Rob sent me an e-mail telling me that he believes that everything I say about stock investing and about the research in this field is right on. He said that he has experienced some of the hate from Buy-and-Holders that I have experienced. He told me the story of two researchers who wanted to do research on some of his ideas and who were taken aside by Buy-and-Holders and told that there careers would be destroyed if they went ahead and produced that research.

    Does Rob Arnott need help/counseling? Bob? Does Robert Shiller need help/counseling? Did John Walter Russell need help/counseling before he died? Does Wade Pfau need help/counseling? DId all of the thousands of our fellow community members who have expressed a desire that honest posting be permitted need help/counseling? Does Miranda Marquit need help/counseling? Does Larry Ludwig need help/counseling? Does Keven Mercadante need help/counseling? Does Joe Taxpayer need help/counseling?

    I have given you a great gift. Until I pointed out the errors in Greaney’s SWR study, there were people who were taken in, people whose financial futures were destroyed by the errors in that study. You don’t feel today that you can post honestly about the matter because you are already in too deep, you have already put forward hundreds of posts “defending” the Campaign of Terror against our boards and blogs. But this is financial fraud. That’ a crime, a felony, prison time. The harm done by Bernie Madoff was a drop of water in the Atlantic Ocean compared to the harm done by Lindauer and Greaney and their respective Goon squads.

    I will continue to post honestly. I will say what good stuff about you that I can because that’s the right thing to do. But I will also tell about the tactics you have employed to keep the Early Retirement Forum free of honest posting on safe withdrawal rates and lots of other critically important investment-related topics. Because you are not the only human being that matters here. There are lots of people who do not understand that that board (and lots of others, to be sure) were taken over by internet Goon squads a good number of years back and that they have been operated as corrupt enterprises ever since.

    I wish you the best of luck with whatever investing strategies you elect to pursue, Bob.


  17. Bob Smith says


    I started my responses to address the topic at hand. You decided to steer this in another direction with all the other topics you brought up. I did you the courtesy of doing some research on the items you have subsequently mentioned. I could now sit here and respond to every one of the items you have now brought up here, yet then you will feel like all I am doing is attacking you and, as I have said before, I am not looking to get down in the trenches with you and resort to those kinds of attacks.

    I meant with all seriousness that you need to some help. Do you really want me to spell out why I say that?

  18. Rob Bennett says

    I don’t have a preference, Bob. I’ll do my best to respond effectively on behalf of the thousands of our fellow community members who have expressed a desire that honest posting be permitted regardless of which way you elect to play it.

    We are in a transition period as a society. There really was research that convinced lots of good and smart people that Buy-and-Hold was the way to go. A huge industry was built around that. Then new research was published showing that Buy-and-Hold can never work in the long term. Those findings were covered up or ignored. All that happened before I came on the scene.

    When I came on the scene, I found that there is a big percentage of the population interested in hearing about the realities. But they are not convinced today. They need to hear about Valuation-Informed Indexing from more people, especially from more recognized experts. When they hear both sides, most of them will come around. But as of today, the Goons have the upper hand. Most normal people have never seen this level of abusiveness. So it scares them. Like the fellow who put up that first post at the Early Retirement Forum, they back away as soon as they see the nastiness appear. So you Goons turn to that card over and over and over again.

    My job is to open up every board and blog on the internet to honest posting on the last 32 years of peer-reviewed academic research. Every word I write is written with that goal in mind.

    If you put forward all sorts of nasty stuff, that might hurt me. It’s happened before. It wouldn’t shock and amaze me if it happened again.

    But there is another possibility. If you put forward nasty stuff one too many times, some influential figure will get fed up with you. That person will write up the story of what has been going on for 11 years now and we will all move to a far better place. That of course would be wonderful.

    I only need to win one time. Once we have a big blog writing about this stuff or a story on the front page of the Wall Street Journal or the New York Times, the entire house of cards comes falling down. Then all of those people who have told me that they would love to be posting honestly but are too afraid to do so today come forward. And then we all move from the terrible place where we are today to the place where deep in our hearts we all (including you, Bob!) really want to be.

    I am a Normal. I don’t like the nastiness any more than any of the other Normals. So, no, I don’t look forward to seeing what you are saying you will bring forward. But that’s the job, you know? You hit me with everything you’ve got and I do what I can to explain to those listening in that this is not the way that people act when they possess confidence in their investing strategy.

    People said I needed help when I put forward my May 13, 2002, post pointing out the errors in the Old School safe-withdrawal-rate studies. You were one of them. In all the years since, you have never sought me out to say “sorry, man” when you saw the articles in the Wall Street Journal and the Economist pointing out that I was right all along. That says something to me. That sends a message to any other fair-minded person listening in on our conversation as well.

    Hit me with you best shot, Bob. I will do my best to respond with love. I won’t say that you are right to play the games you play. That wouldn’t be love, that would be enabling. But I will put forward the best words I can think of to help you see that you are on the wrong track.

    Wade and I gave you a great gift when we presented you with peer-reviewed research showing you how to reduce the risk of stock investing by 70 percent. It was too big a gift for you to accept. It hurts you to realize that you weren’t born knowing it all, that there have been things that you have had to learn from others. I am proud to have offered you (and many others, to be sure) that wonderful gift. I offer zero apologies for Wade or for myself or for Shiller or for any of the thousands of our fellow community members who helped me (and you, Bob!) along the way.

    Blast alway, old friend. I am braced for hellfire.


  19. Bob Smith says

    Larry – I agree with your comments listed above about attacks. As pointed out before, I did some quick reading today as to Rob’s additional points so that I could respond and at least show Rob some courtesy that he, in turn, hasn’t provided. What I found, however, is that he has either exaggerates or lies about everything he brings up. In fact, I can’t find a thing that is fully honest. Rob either has a significant character flaw or has some kind of mental disorder. Either way, he needs help and my responding to his points really doesn’t help him in anyway. In fact, it probably would just feed his distorted views.

    I find your site to be interesting and I look forward to contributing comments on your other subjects.

  20. Rob Bennett says

    Rob either has a significant character flaw or has some kind of mental disorder.

    I believe with my heart, mind and soul that the Old School safe-withdrawal-rate studies should have been corrected within 24 hours (or 48 hours at the absolute outside) of the time the errors in them became public knowledge (the morning of May 13, 2002). That much is certainly fair to say.

    My best wishes to you and yours for a happy and prosperous New Year, Bob.


  21. Bob Smith says


    You are either looking to pull me down a rabbit hole or you are just looking to get in the last word. Either way, I am not interested. I stand by my statement, and that applies to what you just posted. I cannot help you and do not wish to converse further.

  22. Rob Bennett says

    I stand by my statement, and that applies to what you just posted. I cannot help you and do not wish to converse further.

    I understand, Bob.

    I hope that the words that you and I have put forward here will help some of our fellow community members come to a better understanding of these terribly important issues.

    Please know that I wish you all the best things that this life has to offer a person.


  23. Brent Gustafson says

    You say “Rob Bennett has been advocating valuation informed indexing for years, and his insistence on it has even had him kicked off investing forums, including the Bogleheads forum.”

    That is wholly inaccurate. Mr. Bennett’s investing views have had nothing what so ever to do with his various bans, including his permanent, life-time ban at Bogleheads (as well as at about a dozen other boards, by Rob’s own reckoning.) No other person that I am aware of has ever been banned at Finance sites so often, and after such internal angst by their administrators, as has Mr. Bennett. I’d invite you to please contact the editor/owners of the Boglehead’s site (or others, such as Morningstar or Motley Fool) to provide specific details of his permanent bannings. I can assure you that what you claim here about his removal is absolutely wrong. It is never his investing views, but his failure to follow board policy (behavior such as trolling, and not his philosophy) that results in the escalating responses, to which Mr. Bennett is invariable trenchant about correcting.

    • says

      No, it’s my investing views.

      However, the part about the site administrators who have banned me feeling great “internal angst” is accurate. I have had numerous site administrators tell me that my stuff on investing is the best stuff on the subject that they have ever read in the same e-mail in which they are banning me. Beat that!

      There has never been a single study supporting Buy-and-Hold. Not one. The entire Buy-and-Hold concept is the product of a giant mistake. Long-term timing (price discipline) was not possible when Fama did his research because index funds were not yet available. So all that Fama ever checked was short-term timing, which really doesn’t work. Long-term timing (price discipline) ALWAYS works and is ALWAYS 100 percent required.

      However, it wasnt until 1981 that Shiller showed that with pee-reviewed research. By that time, the Buy-and-Holders had already set up businesses pushing the mistake approach. They were embarrassed to be found to be in error and went into cover-up mode. The cover-up was able to continue for so long because the huge bull market made Buy-and-Hold (Get Rich Quick) look like a winner for a time.

      Those days are over. And even a lot of Buy-and-Holders would today like to make the switch to Valuation-Informed Indexing. But how? All those statements saying that Buy-and-Hold might work remain on the record. So the transition has been difficult stuff. But I believe that we will get to where we all deep in our hearts want to be following the next price crash.