I’ve posted Entry #44 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called The Discussion the Investing Discussion Boards Won’t Have.
Juicy Excerpt: In investing, the biases are time-based. There are long time-periods in which pretty much all investing sites greatly exaggerate the appeal of stocks, which are followed by long time-periods in which pretty much all investing sites greatly exaggerate the dangers of stocks. An investor gets to hear both sides by living through a 30-year bull/bear cycle. But the case against stocks cannot be spoken aloud during the bull years and the case for stocks cannot be spoken aloud during the bear years.
traineeinvestor says
Hi Rob
While this has historically been true, given the growth of on-line blogs and other “new” media and the sheer number of self proclaimed contrarians out there, is it still the case? It’s pretty easy for anyone who has a view and who wants to express it to self publish (getting people to listen is another matter).
As an example, there was no shortage of people claiming that stocks were a bargain in 2009 – even if those people were in the minority, there were still enough of them to be very noticable.
Cheers
Simon
Rob says
Simon:
This is a super question. You are getting right to the heart of the matter. You have put your finger on the source of all our troubles and you have put your finger on the source of what is going to save us.
The root question is: Is the market efficient? That is, do investors price stocks properly?
Fama says yes. He has never put forward any data showing this. But many smart and good people believe it. Why? Because it makes so much sense! Why WOULDN”T investors pursue their own best interests? If investors pursue their own best interests, the market will see to it that the price is roughly right. That’s what markets do, they provide a means for the different perspectives of all the participants to be reduced to a single number that reflects in some rough way the interests of all of them.
The problem we have in the stock market is — Not all of the interests are being heard!
There’s a ban on discussions of Valuation-Informed Indexing at Motley Fool today. And at Bogleheads. And at Morningstar. And at the Get Rich Slowly Forum. And at lots of other places.
All the people who go to those places to learn about stock investing are hearing only one side of the story. The market (us!) WANTS to be efficient. But it cannot yet pull it off. Why? It doesn’t have the information it needs to do so. For the market to function, investors must be informed. We cannot become informed for so long as there is a Social Taboo against honest posting on the most important questions.
You are right that in theory the internet would make a difference. If the various boards and blogs honored their promises, it would. At every one of the sites that have banned honest posting, there are published rules that protect those posting honestly from abusive posters. At not one of them have those rules been enforced. We have the IMPRESSION of free speech on the internet. But on the topic of investing, it is only pro-Buy-and-Hold views that may be voiced.
How often have you heard Buy-and-Hold described as a Get Rich Quick scheme? Why do you think that is? It was the primary cause of an economic crisis that has caused great pain for millions. And yet how often is this discussed on political blogs much less investing blogs?
Here’s an article at which I quote 101 of our fellow community members who have expressed a desire that honest posting on investing topics be permitted:
http://www.passionsaving.com/investing-discussion-boards.html
Rob