Set forth below is the text of an e-mail (entitled “We Need Your Help to Open the Indexing Boards to Honest Discussion of Valuation-Related Topics”) that I sent yesterday to Vanguard Group Founder John Bogle (with a copy to www. IndexUniverse.com Publisher Jim Wiandt):
This is Rob Bennett, author of the “A Rich Life” blog and owner of the www.PassionSaving.com site. I hope that things have been going well with you since the last time I wrote. You may recall that my May 2006 e-mail introduced you to the Valuation-Informed Indexing concept. To refresh your memory of the contents of the earlier e-mail, here is a link to a blog post setting forth its text:
I was excited to see your almost-but-not-quite endorsement of Valuation-Informed Indexing in your recent video interview with Jim Wiandt of www.IndexUniverse.com. I wrote a blog entry reporting on your comments and on my thoughts as to their significance:
I hope that you will appreciate the great need for me to convey to you the message below despite the delicacy of the matter.
We humans often need to experience pain before we can open our minds to the consideration of new ideas. Have you not found this to be so?
My hope for this e-mail is to persuade you to take actions that you are uniquely situated to take that would steer the Indexing Revolution to a new and (I believe) far more promising path than the one it is on today.
I believe that Passive Indexing, the indexing strategy that you pioneered, is the indexing strategy of the past. I believe that Valuation-Informed Indexing, the indexing strategy that I developed with the help of thousands of middle-class investors participating in discussions held over the last seven years in the Retire Early and Indexing discussion-board communities, is the indexing strategy of the future.
My view is that you did work of huge importance in developing the Passive Indexing strategy (your insights are of course the foundational insights for the new strategy), but that you committed terrible mistakes in your crafting of the first-draft indexing approach. Indexing works for the long-term investor only if he is open to making allocation shifts in response to big valuation changes and many Passive Investors are highly reluctant even to consider the possibility. Investing passively for years causes investors to become emotionally incapable of making the allocation shifts required for long-term success.
I understand that you do not believe this today. I believe that I possess a reaonably good (but far less than perfect) understanding of why. It has taken me seven years of intense study to develop the insights that I now make use of on a daily basis in the podcasts, articles, blog entries, and calculators published at my site. I want to make these insights available to you and to all of the indexers who look to you for guidance (which obviously number in the millions).
That sounds patronizing.
It’s not my intent to patronize. You are one of my heroes. I feel great respect and affection for you because of the work you have done for middle-class investors over a long and fruitful and shining career. It was by reading your book that I learned where stock returns come from and thereby walked the first step that led me years later to development of the Valuation-Informed Indexing strategy. There is obviously no benefit to me if I come off sounding patronizing in an e-mail to my hero and thereby cause him to feel disinclined to help out in the important cause in which I am seeking to enlist him.
But you know what?
There’s nothing that I can do about it.
I sincerely believe that Valuation-Informed Indexing is superior to Passive Indexing in every possible way. I am 99 percent certain of this, as certain as I am of the fact that the moon is not made of green cheese. If I were to suggest some doubt re this point in my words to you, I would be engaging in an act of dishonesty. So I have to deliver the message in the only way in which it can honestly be delivered and hope that you have had some life experience that helps you understand where I am coming from. I have read that you faced a good deal of flak when first leading the charge for the indexing concept. Perhaps there were times when you had to say things that you knew to be so that caused some pain to some people on “the other side” to whom you very much did not want to be causing pain.
I have been learning more and more and more about how stock investing works in the real world in the seven years since I put forward the fateful post to the Motley Fool site that kicked off The Great Safe Withdrawal Rate Debate. I am highly confident that this is what you would have wanted those who followed in your footsteps to do. I am highly confident that, had it been I who pioneered indexing and you who discovered the errors in the first draft of the concept, you would have worked as hard as I have to learn everything possible about the errors made in the first draft and about the changes that need to be made to salvage the indexing concept in the wake of the great human misery it has caused in recent years. In any event, the path that I have taken is to learn all that I could possibly learn. My experience has been that, once I abandoned the idea that Passive can work, there has been seemingly no limit to the learning experiences that have opened to me.
As I am sure you know, the indexing movement is a troubled movement today. There are some who have become so dogmatic about their belief that only Passive Indexing can work that they have engaged in a great deal of ugliness to block thousands of community members who have expressed a desire to explore new ideas. My sense is that, while you remain unconvinced that Passive needs to be replaced, you do not feel comfortable with the tactics that have been employed on discussion boards that carry your name or your company’s name to silence the many community members who have developed doubts about the conventional approach in recent years. Our community needs you to act to bring this ugliness to an end.
My ultimate goal is to convince you and all other Passives that Valuation-Informed Indexing is superior. That is not work that can be done in a day. The transition to a new model can only be achieved gradually, as the thousands of questions that those who have long favored the Passive strategy are answered by those of us who have come to lose confidence in that strategy. I do not ask you to endorse Valuation-Informed Indexing today. I ask you to endorse an end to the ugliness that has blocked civil and reasonable debate on these questions for a good number of years now. The indexing movement needs to leave that ugliness behind us once and for all.
Can you help?
It’s possible that I am wrong. We all have an inclination to overlook the flaws in our own arguments. If I am wrong, I want to know that. The best way for me to learn it is for my ideas to be challenged in civil and reasoned discussions by those who believe in the Passive strategy. The idea of opening our boards to honest and civil and informed and serious (and fun!) discussions is a win/win/win/win/win. We either move the Indexing Revolution in an exciting new direction or we learn that no new direction is needed. Neither of these favorable options is available to us for so long as we give in to fear and refrain from taking the steps needed to get fruitful discussions started.
If you have any questions about what I am writing about here, please know that I am happy to help in any way possible to get things moving in a constructive and positive and encouraging direction. Thanks again for all the wonderful work you have done for middle-class investors and for whatever time you are able to give to consideration of this request.