Yesterday’s blog entry set forth the text of an e-mail sent to J.D. Roth, owner of the Get Rich Slowly blog (with a copy to me) by the owner of the Lazy Man and Money blog. Set forth below is the text of an e-mail that I sent to both J.D. and Lazy Man in response to Lazy Man’s e-mail.
J.D. and Lazy Man:
I certainly understand that you do not endorse all my investing ideas, Lazy Man. I presume that J.D. does not either. That is of course fine and what we all should expect to be the case.
I don’t understand why you didn’t expect me to follow through on the suggestion. I thought it was a great practical and constructive idea for how to address the problem.
I of course understand that J.D. would need to check things out carefully before stating anything publicly and that that might take some time. I do believe that there is a lot of good that could come of it both for him and for many others. But of course only he can say whether he can open up some time for this. I will of course help out in any way that I am able to.
It’s fair to say that I believe that I have uncovered an “injustice in the investing community.” But it really goes well beyond that.
The reality is that a large number of us seven years ago discovered errors in the calculation of the numbers that millions of people use to plan their retirements and that these errors have not been corrected to this day. And a popular personal finance columnist (Scott Burns) says that the reason is that we really don’t want to know what works, we only want to hear what makes us feel good whether it is accurate or not. If that is so, that turns the conventional ideas on investing on their heads. The primary conventional idea is that the market is efficient because most of us are engaging in the rational pursuit of our own self interests. If the reality is that we do not even want to know what works, investing is a largely emotional rather than an entirely rational pursuit. If most investors were not even trying to get things right during the Passive Investing Era, that would explain the huge price crash (something that took many Passives by surprise).
My view is that both the Get Rich Slowly blog AND the Money Blog Network are great places to spread the word both about the accurate retirement planning numbers AND about the tactics that have been used to block discussion of them for seven years now. We have all been affected by the economic crisis. I think we all should be doing what we can to come to an understanding of what caused it and what we need to do to avoid additional crashes in the days ahead. There is certainly huge interest in these questions among our readers.
Again, thanks for any help that either of you can provide in helping people to become better informed about the realities. Please let me know of anything that I can do to help out.
Rob
How come I continue to not understand what the debate is about? Seems like nobody else can either, which is why there are no comments?
Thanks again for helping out, Sam. You are a smart guy and you ask questions that get to the heart of things.
Say that you lived in pre-Civil Way days and say that you opposed slavery. Say that you noticed what happened to other people who spoke out against slavery. They were beat up. They were turned down for jobs for which they were well-qualified. Their families were shunned. All this sort of thing. Would you conclude that it was the better thing to speak out against slavery or to keep your mouth shut?
To be able to function, societies need to develop Social Taboos. We think of our society as an open society and we indeed are more open than most. But no society is totally open. A society that was totally open would collapse. There are things that cannot be said in our society and in all societies.
For a long time now, one of the things that could not be said in our society is that Buy-and-Hold Investing does not work. The question is of huge importance. Millions of people have their retirement money invested pursuant to Buy-and-Hold principles. This is why a Social Taboo has developed that says — You Cannot Go There, This Is a Third Rail. This taboo was needed (or at least we as a society came to believe that it was needed) for social stability.
The Social Taboo has outlived its usefulness. Today, it is the unwillingness of many to question Buy-and-Hold that is causing social instability. The promotion of Buy-and-Hold is the primary cause of the economic crisis. If people could learn about Valuation-Informed Indexing, we could get out of the economic crisis and we could enter The Golden Age of Middle-Class Investing. It’s a win/win/win, with no possible downside.
So why don’t we make the shift?
There have been thousands of book written promoting Buy-and-Hold. Academics have written thousands of studies. There are hundreds of blogs that promote Buy-and-Hold. Reputations are tied up in retaining a public belief in Buy-and-Hold. And on and on.
We maintain the Social Taboo because pointing out the dangers of Buy-and-Hold is going to cause a huge social upheaval. Just as doing away with slavery caused a huge social upheaval. The people who failed to speak out against slavery were not bad people any more than the people who fail to speak out against Buy-and-Hold are bad people. They had lives to live. We cannot always be taking on every battle. If we did that, we would never get our jobs done or our families fed.
That said, there comes a time when one of these things must be taken on. Please understand that I did not volunteer for this assignment. If it had been up to me, I would have continued writing solely about saving and I would still today be the most popular poster at the Motley Fool site. That’s not the role that the Fates had carved out for me. I was to be the one who would take on the Buy-and-Hold Monster, whether I liked the idea or not. I feel into all this with zero desire on my part to walk this road.
It had to be someone, eh? Someone has to do it, Sam, We need to make this transition. Buy-and-Hold was a mistake. It can be reformed into something wonderful and all the people who promoted Buy-and-Hold can have their reputations saved by us all pointing out that we wouldn’t have that something something wonderful if it had not been for the amazing work done by the Buy-and-Holders, who laid the foundation for the Second Draft approach, the approach that actually works. But we MUST make this transition if our economic and political systems are to survive. For us to continue to promote Buy-and-Hold today is for us to commit national suicide, Sam. I can work through this step by step and show you why this is so with numbers.
I am very much aware of the need not to tear our social fabric apart making this transition. This is why you always hear me singing the praises of Bogle and Fama and Malkiel and all the other pioneers. We need to applaud the good work they have done while also moving onto a better path for the future.
I need some help in pulling this off successfully! That’s what it all comes down to,. I know what needs to be done. There is not one person who loses out from this. It is just all winners, all big winners. But one person cannot make this happen. It is a community project. I need at least a small number of responsible and loving people to step forward and then all the rest will just sort of go. Once people see that it really is going to happen, everyone will be pitching in and we will be picking up steam. The next thing you know we will be meeting with Bogle and he will be making the speech he needs to make and we all (including Bogle, to be sure!) will be heroes!
We are trying to move humanity forward, Sam. The Buy-and-Holders were trying to do a wonderful thing. The root ideas were gold. They made a mistake. This happens from time to time with the humans. Perhaps you’ve noticed. If we fix that mistake, we all get to learn how to invest far more effectively than we ever have before. We all get higher returns at less risk and we all achieve financial freedom years sooner. We all have wildly successful blogs.
The rub is the three words “I” and “Was” and “Wrong.” There is no way that a group of people can make a mistake that causes this much human misery and then just cover it up. The Three Magic Words must be said. It is the magic that comes from the voicing of those three words that open the door to all the good stuff. So long as there are millions of people trying to pretend that Buy-and-Hold can work, they are not open to be learning about what really does work. Buy-and-Hold is today sucking all the oxygen out of the room. We need to let it die.
That’s why you don’t understand, Sam. You can’t permit yourself to understand until you are ready to act. Once you (and a small number of others) act, it’s good thing after good thing after good thing and never a negative thing. We are lucky./unlucky enough to be living at a key turning point in U.S. history. We can take things up or we can take things down by the actions we choose re whether to permit honest posting on the Big Fail of Buy-and-Hold or not.
I am voting for taking things up. I could use your help, Sam.
Rob