Thanks for killing a thread. You know that asking Mr. Bennett for any sort of specifics is a sure fire ticket to one of two responses: a thousand word diatribe, or stony silence!

The one thing you will NEVER get from him is a lucid and implementable explanation of how to make his supposedly ground-breaking revelations apply to your own plan. He claims a book will be forthcoming subtitled “How to get what works on paper to work in real life” but Rob has made it abundantly clear that he is familiar with NEITHER how to make something work on paper, OR how to make something work in real life! He is, it must be said at the end of the day, a common BS artist, and nothing more.

So…where are these key numbers? Hopefully after many years of unemployement and the walkout of your wife and kids – you should have had enough free time to actually compute them.

All of the numbers I have calculated do not support your conclusions…

S&P 500
http://finance.yahoo.com/q/pm?s=vfinx

Value Index
http://finance.yahoo.com/q/pm?s=VIVAX

Or you can compare the two funds side by side. You will see that the Value index didn’t rise and fall as much as the S&P 500 much during the 1998-2002 period.

http://quicktake.morningstar.com/fundnet/TotalReturns.aspx?Country=USA&Symbol=VIVAX

I agree that investors who own only one slice are more prone to the extremes of bull and bear markets. So you are right to caution readers of this risk. However, as I hope I have demonstrated, this risk has been mitigated by owning a portfolio that diversifies by including different slices.

Schroeder

I’d take you up on your offer, except that you have a clear history of deleting any contribution with which you do not agree. I couldn’t trust any statements to the contrary, as your history as a liar is obvious from even briefly scanning the post archives of any of the 16 websites from which you have been banned.

Ignoring prices works well during a secular bull market. We recently experienced the longest and strongest secular bull in the history of the United States.

Ignoring prices works horribly during a secular bear market. The depth of bear markets generally match the height of bear markets. So the bear market that follows the longest and strongest bull in history is likely to be a doozy.

The idea that it is reasonable for stock investors to ignore valuations became popular during a huge bull. It has not yet been tested in the real world. We are now only in the early stages of that first real-world test. The numbers that matter are the numbers that will apply when the test is complete, not the numbers that apply in the early years of the test.

The only way that I know of to gain a sense of the bigger picture realities is to examine the numbers that have applied historically, numbers that are not so influenced by the outlier valuation levels that apply today. Those numbers show that there has never yet been a time when those who ignored valuations during a huge bull ended up experiencing anything less than bone-crushing losses in the years that followed. If we see something different this time, it will be a first.

Rob

Perhaps you can provide evidence to support your claim, Rob. By saying “a broad index”, are you referring to the S&P 500? Some say that the S&P 500 is just one of several slices that investors can own. The S&P 500 represents the US Large Blend slice.

The idea of owning different slices is so the portfolio becomes more diversified. The advantage of a more diversified portfolio is to smooth out the up and down extremes that are present in any single slice. The overall results are demonstrated in the link I provided above.

Schroeder

http://www.capitalspectator.com/WM/2008/05/back_to_the_futureagain_1.html

Rob

It depends on how knowledgeable you are, Schroeder. People can also pick individual stocks that are positioned to do well and beat the overvaluation problem that way. Many middle-class investors do not possess the skills needed to know in advance which asset classes are positioned to do well. That’s the whole point of the Indexing Revolution. If you invest in a broad index, you don’t need to do the research needed to make those sorts of choices effectively.

There will almost always be one or two asset classes doing well. But can you really say with certainty that you know which ones they will be? Is it going to be REITS this time? Is it going to be small cap? Is it going to be international? If you really know your stuff, I think that can work fine. I view it as one of Bogle’s major accomplishments that he has been able to convince a lot of people that it’s better for them not to try to pick the winners. Some can do this effectively, most cannot.

If you try picking all of the slices, then you are pretty much back to where you would be if you just invested in a broad index in the first place. Invest in a broad index and your fortunes are tied to the fortunes of the index. You have locked in the market return as your return. You don’t want to lock in the market return as your return when the broad indexes are at the price levels they are at today. Or at the very least you shouldn’t be doing so without becoming informed in advance of the great risk you are taking on.

Rob

This is key. If the state of investing knowledge were what it should be, today’s prices would be an impossibility. As the long-term value proposition of stocks dropped very low, true experts would have warned people to lower their allocations and that would have brought prices back to reasonable levels. That’s part of the job.

So some of us must be getting some things terribly wrong. Bogle is one of the some responsible for where stock prices stand today. He’s done some wonderful things. His promotion of indexing constitutes nothing less than a revolution in middle-class investing, in my view. But he was in a position of influence when prices rose to where they are today. Either he didn’t try to do enough to bring things under control or whatever he tried was not effective. That’s the plain reality (presuming you accept the danger of today’s price level).

Rob