“To Say That Any Market Collapse Is Caused By Passive Investing Doesn’t Make Sense to Me”

Set forth below is the text of the e-mail that Mike Piper (author of the Oblivious Investor blog) sent me on October 27, 2009, in response to me e-mail to him set forth in yesterday’s blog entry.

Rob-

Here is where we disagree. I have seen many investors achieve very real success utilizing long-term passive investing strategies. I therefore disagree strongly with the statement that it doesn’t work and never works. I’ll freely admit that there are strategies which have earned higher returns in the past, some of which may likely earn higher returns in the future. But I cannot agree with the statement that it has “a zero chance of ever working in the real world.”

Further, as I explained in reply to your original guest post on my site, to say that any market collapse or market bubble is caused by passive investing doesn’t make sense to me. If literally everybody were to execute a passive investing strategy (i.e., buying and holding index funds, with only very gradual changes in asset allocation), there would be no sudden spikes or declines in demand for stocks–and there would therefore be no bubbles or collapses. (Not to say that everybody should follow a passive strategy, or that the world would be a better place if everybody did…I’m just pointing out that by its nature, passive investing cannot cause volatility.)

As to banning you, I will openly admit that I’d rather not. I’d rather not ban anyone, frankly. (I would hope this would be obvious given that I approached you about the matter openly and directly rather than simply banning you.) I sincerely hope that you don’t think that what I’m doing here could be described as “intimidation tactics.”

Also, I believe that you’re misunderstanding people’s motivations when you say that their emails are motivated by hurt feelings. I don’t think that’s the case. As I mentioned in a previous email to you, I believe it has much less to do with the actual content of your comments and much more to do with the frequency with which you bring the topic up. 

Again, as I mentioned in the prior email, I sincerely believe that you’d have more success with spreading your message if you brought it up less frequently and/or with less fervor. As it is, I think your methods tend to alienate people rather than win them over. If you’d like to publish this email, you may. But I have to doubt how constructive it would be to post it. It seems to me that the only thing it would achieve is sensationalizing the matter and further alienating people who are currently passive investors. (And after all, these are the people whom you would hope to persuade to be “value-informed investors,” correct?)

Sincerely,

Mike