This article was first posted July 7, 2006.
Passion Saving author Rob Bennett is a self-proclaimed financial advisor and career counselor who famously sold all his stocks in 1996 (just before the greatest bull market in history) and then quit his high-paying job with accounting firm Ernst & Young in August 2000 to retire on a $400,000 nest egg invested entirely in fixed income securities. The fact that Rob was only 43 years of age at the time, lives in the Washington D.C. area, and heads a household with a stay-at-home Mom and two small boys made the decision all the more baffling to those who understand the risks and perils of an early retirement plan that might require funding 50 or 60 years of living expenses. More than 80% of those polled find Bennett's retirement plan irresponsible and selfish since it places unwarranted hardship on his two young children.
Building on his self-proclaimed expertise as a financial advisor and stock market forecaster, Mr. Bennett recently paid for a self-aggrandizing press release to publicize his Stock-Return Predictor. The so-called "Stock-Return Predictor" is based on the work of Government pensioner John Walter Russell. Mr. Russell has his own web site and is one of the primary contributors (posting as JWR1945) to the SeWeR Research Group where his "findings" are often announced and discussed.
Morningstar Diehards Expose Rob Bennett as a Fraud
As they've often done over the past year, the members of Morningstar's (Vanguard) Diehards board looked closely at some of Mr. Bennett's claims and gave him some valuable feedback. You'll find this very interesting thread at the link below along with some excerpts.
11. Will the real Miss Cleo please stand up?
mlebuf| 07-05-06 | 07:31 PM
All long-range forecasting of any type is noise and nothing more. Historically, US stocks have consistently averaged approximately a 7 percent real return. That's what we know, based on over 200 years of history that include wars, recessions, booms and busts of all kinds. Does that mean stocks will have an average real return of 7 percent in the next 30 years? Not necessarily, but given that's all the data we have, I'd say it's the way to bet.
18. Hocus # 17
Allan| 07-06-06 | 05:50 AM
I think you totally missed Michael's point that you cannot accurately predict the outcome of football games, much less something as so hugely complex and as unwieldy as stock market returns. All of the "education" in the world will not consistently make you a winner in betting on football games, much less the stock market, now will it? Although I know you do claim to be able to make these predictions, I doubt anyone takes this very seriously.
19. Facts Should Not be Controversial
hocus| 07-06-06 | 05:51 AM
[[[we can disagree on what to do with this information, but I don't think we can debate the merits of this type of forecasting, unless we believe "this time it's different".]]]
Thanks so much for making that point, ccassell. It is probably the most important point of all, in my mind.
The idea that today's valuations might not affect tomorrow's long-term returns is an absurdity. It defies common sense. The best-informed experts reject it out of hand. And there is not a sliver of support for it in the historical record. It is an extremely dangerous idea that in all likelihood is going to cost millions of middle-class workers the loss of large portions of their life savings. That idea should be assigned to the trashbin of history by the close of business today.
Get past that idea, and what have you got? Hundreds and hundreds and hundreds of interesting questions that middle-class investors should be exploring for fun and profit on a multitude of discussion boards. The Stock-Return Predictor reports facts. There can be no reasonable dispute about the facts. The Stock-Return Predictor does not tell people what to do in response to learning about those facts. It's in the discussions that follow from the effort to come to deal with the facts that we have fun, that we learn, that we develop lots of new strategies.
As you note in your post, there is no One Right Way to respond to these realities. The entire point of a board like this (I suppose I need to say "in my view," although I have a hard time understanding why anyone would take a different view on this one) is to explore these sorts of realities among ourselves. We don't want to have a situation where we all agree. If we ever reached that point, the board would become boring.
We do need to agree that facts are facts, though. Fruitful discussion becomes impossible when it becomes "controversial" to report a fact.
20. The Right & Wrong Side of the Line
hocus| 07-06-06 | 06:00 AM
[[[it's risky to base predictions on historical patterns and why trying to time markets is a loser's game.]]]
So you say, Michael.
You have every right to state that opinion. Saying that you think that using historical data to guide one in making changes to one's stock allocation is on the right side of the line.
Other have other opinions. Your opinion controls what is done with your money, and the opinions of others control what is done with the money of others. The fact that you have a strong confidence in your opinion doesn't give you a right to shut down the discussion of other viewpoints.
I don't mean to suggest by this that I believe that you have tried to shut down the discussion of other viewpoints. I do believe that some others have tried to do this, and I would be grateful for your support for the proposition that those of us who believe that the historical data is providing us an important warning signal should be able to engage in fruitful discussions with others of like mind.
22. Hocus # 21
Allan| 07-06-06 | 06:44 AM
Here's the bottom line with regards to your "strategy", if you can call it a strategy. No matter how you explain it, no matter how many words you throw at this or cute sayings you come up with or illogical conclusions you come to, you believe that returns can be predicted and that the market can be timed. At age 55, my life's experiences in investing tell me that you are flat wrong, and furthermore, I've seen absolutely nothing from you that I can use in a tangible fashion to formulate an investment plan. Your ideas are so mushy that it's a complete waste of time to even consider them.
Don't mean to hurt your feelings, you've obviously postured yourself into a place of martyrdom, you see yourself as right and everyone else as wrong, but your ideas get no traction with me.
23. Disagreement Takes Us to Good Places
hocus| 07-06-06 | 07:04 AM
[[[your ideas get no traction with me.]]]
I understand, Allan, and that is of course fine. If you are going to put new ideas out into the public domain, you need to understand that not all are going to find value in them. That's how the cookie goes crumble-wise, right?
There's a difference, though, between not buying into an idea and becoming hostile in response to the expression of an idea. As I mentioned in my response to Michael, I don't mean to aim this comment at you in particular. As a general comment, I think it is fair to say that there are some in this discussion-board community who in the past have become hostile when the idea has been raised that changes in valuations affect the value proposition offered by a stock purchase. That hostility is a stone-cold drag, for a hundred different reasons.
Discussion boards are not comprised of people who are in complete agreement on all the topics discussed. It is disagreement that generates discussion and learning. So it is a good thing that you and me disagree on some points. It is through the expressions of our disagreement that others listening in are able to learn. (Also, in all likelihood, we are going to find over time that there are a good number of points over which we are in agreement.)
It is only when disagreement is expressed in hostile or nasty or in overly personal terms that it becomes a bad thing. That's the thing that we all need to watch out for.
We all should understand that, when people are not able to put forward their views in civil ways, that's a strong sign that they lack confidence in those views. Hostility is a sign of defensiveness, not of confidence.
OUJohnNasr| 07-06-06 | 08:41 AM
Why did I take hocus off ignore to read this? Another waste of my time... hocus goes back on the list.
27. A dangerous and misleading tool!
HockeyMike35| 07-06-06 | 10:06 AM
I do not even know where to start. I hope no one takes this too seriously. Hocus thinks he can predict the future of the stock market using PE 10. Let's think about this. If PE 10 was a crystal ball that could reliably tell you 10, 20, 30 , 60 year predictions then why bother discussing investing at all? This calulator uses different historic periods for different time horizons. It also uses data from all the way back to 1870. Does anyone really think earnings were reported in the same way then as they are now? We do not have accurate data back that far. A lot of people do not even trust recent earnings to be accurate. The only fact this caculator is useing is a past relationship between PE 10 and stock performance.
It even gives me a 60 year preditiction for a PE of 45. This has only occured once (in the year 2000). There are no data points for even a 10 year return from that point. But Hocus can tell us what the 60 year return is based on historical data?
33. Trust the source?
cashNcarry| 07-06-06 | 11:37 AM
A trip to Rob's website to look at the great "predictor" and the rest of the "passion saving" gems makes me think, "gee maybe this is how Wade Cook got his start". Snake oil wrapped in a lot of babble and name dropping.
38. not facts
greg24| 07-06-06 | 02:15 PM
[[[Rob Bennett: The Stock-Return Predictor reports facts.]]]
WOAH! You need to slow down there. It does not report facts. What part of it do you consider facts?
The "Worst Possible" return, which you estimate has a 5% chance of being beaten? Hardly a fact.
It's a range of possible returns based on a weird hodgepodge of historical data.
If you think these are facts, I'm glad you don't do my taxes or work for my company.
statsguy| 07-06-06 | 03:11 PM
Thanks for your reply to my #9... sorry I have been away from this conversation so long.
Your reply did not really answer the question for me. I have looked at JWRs website and was unable to find a satisfactory answer to my question. I do not trust that your model can calculate a 50 percent chance that the actual return will be better than the "most likely" number and a 50 percent chance that it will be worse. without making some assumptions.
Depending on the assumptions you can show just about anything. I have no idea what assumptions have been made or the validity of them for this situation. This problem is much more challenging than just getting some data and running some regressions.
Using regression to make probability statements for PE10 values outside the typical range of values is a hard problem. Choosing appropriate and meaningful assumptions to make this problem approachable is what will make the calculations of your calculator meaningful. Even if your assumptions are meaningful you then need to show that the variance of your results is not so large as to make the numbers meaningless.
Personally, I do not think I would trust the calculator until this research has passed rigorous refereed review. I hope your book project is successful but again I (personally) would not be interested in a book that does not rest on reviewed work.
41. Re #20
mlebuf| 07-06-06 | 03:21 PM
[[[[The fact that you have a strong confidence in your opinion doesn't give you a right to shut down the discussion of other viewpoints.??I don't mean to suggest by this that I believe that you have tried to shut down the discussion of other viewpoints. I do believe that some others have tried to do this, and I would be grateful for your support for the proposition that those of us who believe that the historical data is providing us an important warning signal should be able to engage in fruitful discussions with others of like mind. ]]]]
Rob, pardon me for being a slow learner. When I first read your earlier posts sometime ago, I appreciated your politeness and thought you were being unfairly attacked by others. However as time goes on, I have come to understand the reason why others lose patience with your posts. To paraphrase Abraham Lincoln, your posts compress the fewest ideas into the most words better than just about anybody I know. It's a free country and you can post whatever opinions about investing you like. You can invest or not invest your money any way you please. It's your money.
If you want support for eminent signs that there's a huge economic storm brewing, you might find more support elsewhere at a site that supports economic forecasting or forecasts of gloom and doom. Howard Ruff, predicted we were in for "ruff times" in the early '80's at the onset of the great bull market. It was bad timing on Howard's part. Ravi Batra's "The Crash of (whatever year was the forthcoming year)" books also turned out to be wrong. At any point in time there are of plenty of people who proclaim the sky is falling. I think you're more likely more welcomed by them.
I liken prophets of economic doom to a person who wakes up every morning says, "I'm going to die today." Someday he/she will be right, but only once.
42. #41 Michael
OUJohnNasr| 07-06-06 | 03:28 PM
I don't know why you don't want to take Rob's advice. He appears to have been successful. After all, he retired with about $400,000 with two kids to put thru college and he's a noted author.
Maybe you should take his advice; you might be able to retire with a beautiful Arizona home, be financially secure, reach financial independence earlier and life, and waste time on Internet message boards.
Always consider the source :)
45. The Kiyosaki Effect
mattwright| 07-06-06 | 04:17 PM
I will give Rob credit where it is do. He is apparently a very good salesman. Despite the complete lack of substance of anything he says, he has managed to get himself quoted in numerous publications as an "expert".
He is at this time a junior Kiyasaki, he just needs to start making more ridiculously bold statements and fabricating information and he'll be next in line to share in the wealth of deceiving the public.
46. bold statements
greg24| 07-06-06 | 04:20 PM
[[[he just needs to start making more ridiculously bold statements]]]
Saying that his little toy generates "facts" is a good start.
50. Quick question
HockeyMike35| 07-06-06 | 05:32 PM
JWR is posting about this in income and dividend investing. Apparently Rob has paid a company to put out a press release about the calculator.
[[[Rob Bennett: When I publish the book, I will of course explain that Russell's work is not reviewed.]]]
Don't you think it would be responsible to have posted this information on your web page and in the press release?
51. Publish a book
egyhazy| 07-06-06 | 05:40 PM
without peer reviewed methods or results. So what are people paying for?
You need to publish/vet initial findings in the Journal of Finance or another suitable industry centric publication so that any flaws can be vetted before you pull another "Beardstown Ladies" and send tons of people in the completely wrong direction.
Unless of course you want to be labeled a crackpot by the world-at-large forever instead of just Internet forums.
52. # 51
Allan| 07-06-06 | 05:48 PM
[[[Unless of course you want to be labeled a crackpot by the world-at-large forever instead of just Internet forums.]]]
Now that's funny!
For more on Passion Saving author Rob Bennett visit the Best of Hocomania forum.