I recently posted a Guest Blog Entry at the Moolanomy blog entitled Stock Volatility Kills.
Juicy Excerpt: Don’t count all the gains you obtain from stocks as real. The U.S. economy has for a long time been sufficiently productive to finance an annual increase in stock prices of about 6.5 percent real. In years when stock prices go up by that much, the gains really are yours to keep. But in the 1990s there were years when stock prices went up by 20 percent or 25 percent or even 30 percent. Were those gains real too? Hardly.
Rob says
I was happy to see Kevin, that author of the “Out of Your Rut” blog, join in our community discussions with a comment he put this morning to the blog entry on “We’re All Better Off As A Result of the Stock Crash”:
http://arichlife.passionsaving.com/2009/08/04/were-all-better-off-as-a-result-of-the-stock-crash/
Welcome to the money house — er, the Financial Freedom Community, Kevin!
Rob
John Walter Russell says
Rob,
This makes my mouth water, thinking about “Investing for Humans.”
Have fun.
John Walter Russell
Rob says
Thank you for those kind words, John.
Rob
Arty says
Rob,
Read your “Today’s Passion” (actually, “yesterday’s passion”) on Taylor et al, which was spot-on.
Someone mentioned that thread is now locked, likely due to nastiness, but the real bile was directed at the poster who challenged Taylor’s position, and yet that language was permitted. Hmmm, wonder why?…Can you imagine if that language was directed in reverse?
Not to worry. The instant that thread was locked, Taylor began a new stay-the-course thread:
http://www.bogleheads.org/forum/viewtopic.php?t=41324&mrr=1249625534
But alas, Plan B has departed into the ether, though not before being noticed by some of those guys.
Arty
Rob says
The language that I quoted for the “Today’s Passion” feature made a point that is too rarely made. The poster pointed out that not only is Taylor wrong in his unwillingness to acknowledge that he has abandoned Passive Investing (quite properly, given the results he has obtained), the other moderators are wrong not to call Taylor on his nonsense.
I agree 100 percent. I would broaden the point. The entire community is wrong not to call Taylor and the other moderators on their nonsense.
Passive Investing has never worked. It is impossible for the rational human mind to imagine circumstances in which it ever could work. Yet it has been the dominant model for 30 years now. Huh? How did that happen?
It didn’t happen because Taylor Larimore is a really, really, really, really bad guy. Or because Mel Lindauer is. Or because John Greaney is. Or because John Bogle is.
Lindauer and Greaney and Larimore and Bogle all did bad things. They all played a part in bringing on this economic crisis. But it was not just them. We all played a part in bringing on this nightmare by tolerating the nonsense and ugliness for so long.
We got into this mess as a community. We will get out of this mess as a community. There is no other way.
We all told a big lie to ourselves. Now we all need to untell that lie and get about the business of rebuilding our economic and political system.
We have seen some positive signs in recent months. But it is still hard for most of us to accept just how much destruction we have caused. We need to help each other work up the courage to take the steps that need to be taken.
Love is the answer.
Yes, honesty matters. But love must come first. The honesty that we must offer must be offered in a spirit of love or it will not work its magic.
Great comment, Arty. Thanks for saying that.
Rob
Arty says
Amazing how the high priests (board leaders) are telling people how to interpret Bogle’s words. I’m reminded of a line from the movie THE BORDER that tells you what to think:
“If I tell you a pissant can haul a bale of cotten, you don’t question me, boy, you just hook it up!”
In the original thread, more people understood what was going on, regarding Plan B. The quote by daryll40 says it:
“I don’t care how you guys try to spin this, it’s completely something new that’s never been part of the Bogle philosophy…”
http://www.bogleheads.org/forum/viewtopic.php?t=30085&postdays=0&postorder=asc&highlight=plan&start=150&sid=d68a405cc720f78e51479e0c37efc35e
Arty
Rob says
“I don’t care how you guys try to spin this, it’s completely something new that’s never been part of the Bogle philosophy…”
Yes and no.
Daryll is of course correct that Bogle never said that Passives need to sell all their stocks at the bottom. But then Taylor Larimore never said that either until circumstances developed in which he felt compelled to sell all his stocks at the bottom. Taylor was every bit as strong a critic of Plan B as everyone else until he was required to say that he always had a Plan B or else acknowledge that following Passive Investing principles caused him to dramatically miscalculate risk.
What would Daryll have him do — acknowledge that Passive doesn’t work? That’s what I would like to see Taylor do. Once Taylor acknowledges that Passive can never work, we all can enjoy a wonderful learning experience together. But it would require that Taylor (and Bogle) say the three magic words (“I” and “Was” and Wrong”). That’s been the rub for seven years now (it’s 28 years if you count back to when the academic research first showed that Passive can never work in the real world).
Daryll knew all this (at least on some level of consciousness) long before Taylor made up his Plan B gibberish. There’s a quote from Daryll in the “Investing Discussion Boards Ban Honest Posting on Valuations!” article (in the “Banned at Motley Fool!” section of the site) in which he points out that he has never heard a civil and reasoned “counter” to the Rational Investing concept; he asked “Is there a counter?” Of course there is no counter. Of course there can never be a counter.
The root reality is that the Passive Investing philosophy is a 100 percent emotional philosophy. There has of course never been any alternate universe in which valuations do not affect long-term returns and there of course is never going to be one. If we want to learn how to invest successfully, we need to all start insisting that we be permitted to use our boards for the purpose for which we created them. But there’s a price-tag associated with doing that. The price-tag is that we need to acknowledge that we too once believed in the Passive Investing gibberish that has done so many so much financial harm.
How many of us have suffered enough financially that we are willing to say the Three Magic Words? How much more do we all need to suffer before the number of us willing to say the Three Magic Words is large enough so that those not willing to do so can no longer dominate us with deception and intimidation tactics? These are the only questions that matter in a practical sense. Those who have pushed Passive Investing in the past will continue to push it in the future until those done harm by it work up the courage to stand up to them.
There is no nice way to tell someone that he has caused huge amounts of financial misery by pushing investing ideas that are rooted in pure nonsense. We should say things as charitably as we possibly can. But the reality is not a pleasant one. There is no way out of this except through honesty and an honest accounting of what the promotion of Passive Investing has done to this country is not a pretty story.
It doesn’t work to say “oh, please be honest about this particular point but feel free to continue to push Passive Investing.” It is the idea that it is possible for Passive Investing to work that is the core dishonesty. If the promoters of Passive Investing agree to be honest on one important point, the entire thing unravels. Once the ban on honest posting is lifted, Passive Investing is no more. I think it would be fair too conclude from the behavior we have seen that the promoters of Passive Investing have known this for a long time. They understand the stakes of permitting honest posting on something like safe withdrawal rates or the Plan B gibberish (even if they do not possess a full understanding of the investing realities).
Bogle has of course never endorsed the Plan B gibberish in explicit terms. But he HAS endorsed Passive Investing. And, if you try to defend Passive Investing on a discussion board, you are inevitably forced sooner or later to engage in deception and intimidation in response to questions put to you that reveal the logical inconsistencies of this “idea” if answered honestly and logically.
The fair question is — Would Bogle do any different if he were in Taylor’s circumstances? The only alternative available to him would be to abandon his belief in Passive Investing. My sense is that doing that would cause Bogle a good deal of pain, just as it is causing Taylor a good deal of pain to make the changes needed to get to a point where he can do that. I don’t say that there are no differences between Taylor Larimore and John Bogle. But in fairness I have to say that I see some big similarities too.
Rob
arty says
Plan B was never part of the stay-the-course spin. Saying that it was, in essence, part of stay-the-course all along (that is, part of thee course if the course leads that way), is just wrong and that is what many reacted to with “huh?”.
Arty
Rob says
Plan B was never part of the stay-the-course spin.
Giving people wildly wrong numbers to plan their retirements was never part of the official Passive Investing spin either, Arty. But what would you do if you were trying to promote Passive Investing and you looked at the historical data and saw what the real number were? Would you report them honestly? Would you continue to promote Passive Investing all the same? How in the world could you possibly do that and have anyone believe anything you were saying?
I don’t like Plan B even a tiny bit. But I fully understand why Taylor is now pretending that he supported the Plan B approach all along. What choice does he have (presuming that he is not willing to abandon his “defense” of Passive Investing)?
Passive Investing is not an investing philosophy, it is a disease. When we recover from the disease, millions of will gain the ability to employ our intellects to the question of how to invest effectively. For so long as we try to rationalize the widespread promotion of Passive Investing for 30 years, that will remain impossible.
You cannot start with a 100 percent irrational premise (that valuations do not affect long-term returns) and reason yourself to any rational conclusions. It simply cannot be done. We need to address the real problem here. The Plan B gibberish is just a symptom of the disease that is killing us all.
Rob
Arty says
I hear ya on the other issues too. I have a different take on passive (lower case “p”) but it is nonetheless one that respects what the market can do.
Of course I can see why Taylor doesn’t fess up.
I suppose what bothers me here–among the other things–is how those who pointed out the problems, especially this Plan B stuff, and especially recently got utterly savaged (I wasn’t around for the older discussions that you mention). And that was permitted to happen.
I hate bullies, and maybe that is what is getting to me here.
Arty
Rob says
I have a different take on passive (lower case “p”)
Thanks for saying so and thanks for adding some balance to the discussions. That’s a big plus for all of us.
I hate bullies
I’m totally with you on this one. My sense is that 80 percent of all our board communities feel the same way.
Rob
Evidence Based Investing says
But then Taylor Larimore never said that either until circumstances developed in which he felt compelled to sell all his stocks at the bottom.
I would be interested in what evidence you have that Taylor “felt compelled to sell all his stocks at the bottom”?
Rob says
Arty provided a link up above, Evidence.
Rob