I recently wrote a Guest Blog Entry for the Improve the Quality blog entitled Only You Can Prevent Forest Fires — and Bull Markets!
Juicy Excerpt: We cannot wait until prices are insanely high to warn people that they must sell their stocks, however. By then, people are too caught up in the fantasy thinking that characterizes bull markets to listen to reasonable advice. I think we need a change in our mindset toward stock investing. We need to think of the stock market as a community asset, something we all benefit from and that we all should try to protect.
John Walter Russell says
This is a nice article, but what about competing voices? They want dollars. They will work hard to drown you out. The stakes are high.
Have fun.
John Walter Russell
Rob says
John:
I think of it like pollution.
No company wants to on its own do something about how its factories pollute the air. If one did, it would raise its cost of business and damage its ability to compete and possibly put itself out of business.
But if no one ever deals with pollution, eventually so much damage is done to the environment that either the government comes down with a very heavy hand or else eventually there’s no earth left for them to conduct business in.
I don’t think that telling people the straight story about stocks is in a long-term sense against ANYONE’S best interest. Even the mutual funds would be better off if more people understood how stocks work and if we didn’t have these boom-and-bust cycles. The trouble is that no one wants to be the one to bell the cat. If one company steps forward, the others are all threatened.
We need to act as a community. When we ALL decide together that we want to save the market (and thereby save our economic system), we can do it by committing ourselves to community action to prevent people from falling for the Passive Investing concept. My sense is that many of the big-name experts would LOVE to be freed from having to promote the Passive Investing junk.
This is one of those “Tragedy of the Commons” issues. We all benefit if we all do the right thing. But no one of us can do the right thing without getting his head cut off.
We need to work together to put guardrails in place. The best guardrail is knowledge. Once people understand how investing really works, they are not going to forget. Once people start paying attention to price, it will become a habit. Things will get to a point where anyone saying that price doesn’t matter will be laughed at.
The hardest step is the first step. Right now there are huge institutional forces opposed to making the shift. But even those institutional forces would benefit in the long run from the change. I think we might want to consider a national amnesty from lawsuits for companies and advisors who promoted Passive Investing in the past.
We need to avoid the temptation to want to punish people for what has happened to us and focus on bringing about solutions to the problem. The reality is that just about everybody contributed to the problem in some way. We just need to face that and go forward. The good news is that Rational Investing is so much better than Passive that we can make up for all the losses suffered following the failed approach.
We just need to work up the courage to take that first step.
Rob