Set forth below is the text of my October 27, 2009, response to the e-mail from Mike Piper (author of the Oblivious Investor blog) set forth in Friday’s blog entry.
Holy moly! Another one goes to the dark side!
I do not respect the viewpoint you express in this e-mail (although I of course respect the good things that you have done with your blog aside from your promotion of the long-discredited Passive Investing model).
Passive Investing is reckless investing. The academic research has shown for 28 years now that there is precisely zero chance of it ever working in the real world. The continued promotion of this “idea” for three decades after we learned that it cannot work has caused the greatest loss of middle-class wealth in the history of the United States. We are now suffering through an economic crisis which stands a good chance of bringing on the second great depression. We have seen significant damage to our political system.
All of us who have enjoyed benefits from our economic and political system have a responsibility to do what we can to help get us out of this economic crisis as quickly as possible. The single most important step is to start shooting straight with middle-class workers about the failure of the Passive Investing model and to get about the business of building a new and more realistic one.
The very fact that you have received e-mails from readers expressing happiness that a post that reported on an important investing reality in an entirely appropriate and helpful way was deleted from the blog should tell you that something is terribly, terribly wrong with this model. Why is it that Passive Investors feel such shame about the damage that has been done by the reckless promotion of this model for years after it was discredited by the academic research? It is because humans have within them a desire for honesty and because we feel a natural compassion for our fellow investors (and for ourselves!) and feel a revulsion over our own bad behavior when it causes such human misery. I cannot support this kind of thing.
I of course agree that we should be taking the feelings of those who have endorsed Passive Investing or followed Passive Investing principles into account when making the transition to the Rational Investing model. It is critical to move forward in a spirit of charity. But it is also critical that we do indeed move forward. Allowing further promotion of Passive Investing (or, worse, allowing the promotion of Passive Investing while NOT permitting honest posting on the dangers of this “strategy”) helps no one. It makes a very bad situation worse.
You have responsibilities not only to those of your readers who are so emotionally damaged by their earlier belief in Passive Investing that they cannot bear to hear the realities publicly expressed. You also have responsibilities to those who today possess a desire to learn the realities. I know from long experience discussing these matters that there are such readers at your blog (I also know that there are indeed not a small number who are feeling real pain about the mistakes they made at earlier times). If it becomes a question of working with you to proceed in the most constructive and positive way possible for your entire readership and for the entire community of people who see the value in Bogle’s many good ideas, I am happy to do whatever I can to move the process forward. If it has become a question of pretending that there is some alternate universe in which the continued promotion of Passive Investing will not continue to do great harm to all involved, I am not able to participate.
There will of course be no problem with investors “latching on” to timing ideas that do not work if most personal finance blogs and most investment advisors simply unite in telling investors the straight story. There are millions of investors who today believe the nonsense claims that The Stock-Selling Industry has been pushing on us for three decades now. That reality has of course caused huge financial losses and made investors about 50 times more emotional about these matters than they would be if we were all reporting the realities accurately. The concern you express here is one of the many problems caused by the reckless promotion of Passive Investing. The obvious solution to the problem is to stop promoting Passive Investing and to made it a point to regularly point out the dangers of buying into the dangerous “idea” that valuations do not affect long-term returns.
I cannot say with certainty whether I would eventually change your mind or the minds of many of your readers in the event that you continued to permit honest posting at your blog. I believe that you and your readers would eventually come around as the benefits of Rational Investing are so great and the downsides to Passive Investing are so great. I know one thing for certain. If more people do not work up the courage to report honestly on these questions, our chances of changing minds (and of thereby salvaging our economic and political system) are slim indeed.
If you looked at the history of what the promotion of Passive Investing has always done to us in the past and then considered how out of control things got this time, I think you would agree that, whatever are the odds of success, we have no choice but to put our best efforts to doing what we can. Having a successful blog is not going to mean much if the economy goes into depression. If a world war follows, as it well might, I think it would be fair to say that having a successful blog would come to mean just about zero.
I will continue to post honestly at your blog until such point as I am banned from participating. People who threaten bans do not always follow through. I think that the right thing to do is to force you to push the button before saying publicly that you have banned honest posting at your site.
I would like to post both your e-mail and my response to it at my blog for the obvious news value they possess for those hoping to see the internet opened to honest posting on investment topics in days to come. If you object, please let me know and I will post only a summary of the points made in your e-mail.
I will be contacting numerous political blogs and policymakers in days to come in an effort to organize an effort to have legislation opening the internet up to honest posting on the failure of the Passive Investing model and on the intimidation tactics that have been used to mislead millions of middle-class investors about the realities of stock investing as revealed by the academic research and the historical data. In the event that you do indeed ban honest posting, I will of course be required to report that fact as part of the story and to urge those concerned about the future of our economic and political system to demand that you reopen your blog to honest posting (or else to at least expressly explain in the rules of the blog that honest posting on the failure of the Passive Investing model has been banned, so that people reading the blog understand that they are not hearing the straight story).
I will of course note in my comments re you that we had good dealings for a time, that I believe that your personal belief in Passive Investing is sincere, and that I believe that you have done good work on many topics not related to the one of whether honest posting should be permitted on the failure of the Passive model.
I hope that we will remain friends in the event that you do follow through with your plans to ban honest posting. If ever there comes a time when you have questions about what we have learned in the Retire Early and Indexing communities over the past seven years, please feel free to ask them. You are a fine writer and I sincerely believe that at least a part of you would like to take things to a better place than where they stand today. If ever I can be of help in giving more strength to the part of you that got you interested in investing issues in the first place many years ago, I want to do all that I can to make that happen. You are in a position to have a huge positive influence if you ever elect to take the other path.
Thank you for letting me know that the readers who wrote you believe that I proceed with the best of intentions and also for saying that you believe this yourself. It is a kindness for you and for them to say that given the circumstances that apply here. That sort of thing makes a difference. I see those words as a bright spot in an otherwise very dark message.