[Introductory Note: I was wrong! After I posted this blog entry, I sent an e-mail with a link to it to Pop. He wrote back saying that “I was just lazy and taking forever to ‘popize’ your image.” Pop intends to get the Guest Blog Entry posted at his site within the next day or two. I look forward to seeing it there and getting a chance to talk over the points made in it with interested parties. I gave a quick thought to deleting this blog entry but decided that it may be useful in letting people see how well-intended people (in this case — me!) can jump to false conclusions when the environment in which an issue is discussed becomes so confused and poisoned and generally messed-up as have internet discussions of the realities of stock investing over the past eight years. I told Pop that I thought his effort might help lead us all to a better place. Thanks, Pop!]
The author of the Pop Economics blog has failed to follow through on his promise to post a Guest Blog response to his blog entry arguing that there are circumstances in which Buy-and-Hold makes sense.
Pop posted a blog entry on February 16 entitled “Resistance Is Futile: Why Buy-and-Hold Beats Value Investing.” He described it as “Rob Bait” because it argued against my position that it is not possible for the rational human mind to imagine a circumstance in which Valuation-Informed Indexing would not offer a better risk-adjustment long-term return than Buy-and-Hold. I praised the blog entry, saying that, while I did not agree with some of the points made, I thought that it offered a civil and reasoned defense of the Buy-and-Hold Model, something we very much need to see more of if our ongoing discussions of the realities of stock investing are to prove positive and constructive and life-affirming.
Rahiv Sethi, a professor of economics at Columbia University linked to Pop’s post in a discussion with me of the merits of Valuation-Informed Indexing. Of Valuation-Informed Indexing, Rahiv said: “Rob Bennett makes the claim that market timing based on aggregate P/E ratios can be a far more effective strategy than passive investing over long horizons (ten years or more.) I am not in a position to evaluate this claim empirically but it is consistent with Shiller’s analysis and I can see how it could be true.” But Rahiv also pointed to Pop’s post “for a sober assessment of why passive investing remains the best strategy for most investors despite modest violations of informational efficiency.”
In response to Rahiv, I sent an e-mail to Pop proposing that I write a Guest Blog Entry to appear at Pop’s site in which I would respond to his arguments. I told Pop: ” I think you have taken a potentially breakthrough step in moving this discussion to a more elevated and warm and civil and learning-oriented level. My aim in writing a Guest Blog Entry would be to continue moving things in that direction while also of course arguing the anti-Buy-and-Hold case.”
Pop told me that he liked the idea and I sent a few words his way. He told me in an e-mail dated March 19 that, while there were things he liked about my Guest Blog Entry, there were also “some things I’m not quite sold on” and that, in general, I feel like it needs to read more as a stand-alone defense/espousal of value investing, as if the post you’re responding to had never been written.”
Pop also included an exceedingly strange comment in his e-mail. He said: “One thing I do want to avoid–and I’m sure you appreciate this–is to bring any of the meanspiritedness that has occurred on some of the forums/blogs you’ve visited before to Pop Economics. If that happens, I’ll shut the debate down immediately, no matter how great the discussion is. I just don’t think people want to read that.” I have of course long argued that all community members should be working together to bring the Campaign of Terror led by Mel Lindauer and John Greaney against the Retire Early and Indexing discussion-board communities and the Personal Finance Blogosphere to a complete and total stop as quickly as possible; I put forward a post at the Motley Fool site urging Greaney’s removal on November 23, 2002! Pop, in contrast, has never addressed this issue at his blog. Even when he learned of the tactics being employed by J.D. Roth at the Get Rich Slowly site to ban honest discussion of the Big Fail of Buy-and-Hold at its forum, Pop failed to take action. So these words struck me at the time as odd and I highlighted them in my post setting forth the text of Pop’s e-mail (please see link above).
I made this point in my response e-mail. I said: “Humans live in communities, Pop. When people in the communities adopt an “it’s not my battle!” attitude, the bad guys who are present in every community see the way open to destroying those communities in pursuit of their self-interested agendas. I think that those of us who learn so much through our interactions with our fellow community members owe something to those who build the boards and the blogs — and that ain’t the abusive posters!”
Pop asked that I not post the full text of the e-mail he sent me in reply to my response e-mail. However, I did post my response to the unpublished e-mail, and that response gives at least a clue to the primary concern being felt by Pop. The post that sets forth the text of my e-mail is entitled “I Would NEVER Deliberately Do Something to Hurt Someone’s Pride or To Cause Someone to Lose Face.” I explained in that e-mail: “If you ever hear of any rumors of people opening up to the idea of taking steps that would prove to be positive for EVERY SINGLE PERSON INVOLVED, please let me know. I believe that this saga is someday going to come to an end through that sort of action and I want everyone to know how I will play it if such an idea ever gets put on the table. My take is that there must be an insistence on honesty COMBINED with charity. Both are essential.”
I posted the text of the blog entry that was rejected by Pop, entitled “Valuation-Informed Indexing Is Risk-Diminished Investing. Juicy Excerpt: “Stock prices are self-correcting. The market really can be efficient! But only if investors are made aware of the need to keep their risk profiles roughly constant by adjusting their allocations as needed in response to big price swings. When that step is missed, all price discipline is removed from the market. That’s what causes insane overvaluation and the price crashes that follow from it.”
In late March I sent Pop a second effort at responding to his “Rob Bait” blog entry defending Buy-and-Hold. The new effort was entitled “Buy-and-Hold Masks Investing Risk.” Pop wrote me that he had accepted the new Guest Blog Entry and expected to publish it within a week or so. In the e-mail I sent him in response to his acceptance e-mail, I pointed out that: “I could be wrong, Pop. I am not God. If I am wrong, that will come out in public discussions and that will of course be a good thing. If I am not wrong, it will come out that the Buy-and-Holders are wrong. That of course also would be a good thing in the event that they really are wrong. The key today is just getting the ball rolling. We need to just discuss these matters in civil and warm and friendly and reasoned (and yet spirited!) conversations. Your approach points the way to a better place for every single personal finance blogger. I have hopes that some others might watch what you do and elect to follow such a course themselves.”
The Guest Blog Entry has not appeared at the Pop Economics site. I have not received any notification from Pop as to a reason why (he had told me in his acceptance e-mail that “you will hear from me soon” re a posting date). I sent Pop an e-mail asking about the status of the Guest Blog Entry and he did not respond.
My guess as to the reason why Pop has gotten cold feet is my posting of a Google Knol entitled “The Bull Market Caused the Economic Crisis.” The Google Knol was posted after I received the acceptance e-mail from Pop but before he notified me of a definite posting date. I sent e-mails to a number of my favorite bloggers on the day the Knol was posted letting them know about it. Pop was on that list. I did not receive a response from him.
The Google Knol points out that the reckless promotion of Buy-and-Hold for decades after the academic research showed that valuations affect long-term returns (Shiller published his research on this point in 1981) caused U.S. stocks to be overvalued by $12 trillion at the end of the 1990s. Even Buy-and-Holders acknowledge that Reversion to the Mean is an “Iron Law” of stock investing (it is John Bogle who calls this an “Iron Law”). So our failure as a sociery to do something about the relentless promotion of this Get Rich Quick approach put us in circumstances in which we were certain to lose $12 trillion of consumer spending sometime over the 15 year time-period beginning in January 2000. The Knol makes the point that this is obviously the primary cause of today’s economic crisis and argues that those of us who would like to see the crisis brought to an end should be encouraging a lifting of the Social Taboo that today blocks us from discussing the dangers of Buy-and-Hold in clear simple and frank and compelling terms.
I will send an e-mail to Pop after posting this blog entry letting him know that I would be happy to give him space at the blog to put forward any words he cares to put forward explaining how I have in any way been unfair in my description of my interactions with him in the event that he believes that I have in any way been unfair. I will also send a link to this blog entry to Rahiv Sethi since he has found value in Pop’s blog entry (as have I!) and might have been interested to have been able to read the discussion that would have followed from Pop’s posting of a rebuttal.