“The Personal FInance Blogosphere Is Not Owned By the Stock-Selling Industry”

Set forth below is a comment that I put to the thread associated with my Guest Blog Entry titled How Has Buy-and-Hold Survived So Long?

You are a knowledgeable guy with an open mind and I really enjoy chatting with you.

Backatcha, Bret.

If VII can overcome all of that, God bless you.

Another way of looking at it is that it would be the internet overcoming all that.

What the stock sellers do is take advantage of principles of marketing. People believe a foolish thing they hear repeated 100 times over a logical thing they hear said only once. That’s how the brain works. We all say that television commercials don’t influence us, but when it comes time to pick a brand of toothpaste, we reach for the one we saw on TV. That’s why Super Bowl commercials cost millions.

The Personal Finance Blogosphere is not owned by The Stock-Selling Industry. Some of us make a few bucks here and there, not enough to make that much of a difference in our coverage. So, if we started asking hard questions and having two-sided discussions, people would for the first time become able to learn things they have never been able to learn before.

Here’s the killer. The Stock-Selling Industry would do just fine if people learned the realities. Stocks really are a wonderful asset class. These people have a great product to sell. They can take credit for all the wonderful insights the Buy-and-Holders really did put forward. And the economic stability that would follow if we did something to cut back on runaway bulls and runaway bears would make millions of people more comfortable buying stocks in the long run.

I truly believe that this is a win/win/win/win/win in the long run. It is like the invention of electricity. There is no downside. The only thing holding things back is that people who have written books or created calculators or whatever feel threatened. But even those people would be better off writing new books or producing new calculators. A rising tide lifts all boats.

The sad part of this is that people do not see this. People see things the way they are today and they cannot imagine them ever being different. I like the people in The Stock-Selling Industry. I really do. I want to bring them around and I want to work with them to make things better for investors AND for The Stock-Selling Industry.

I’ll acknowledge that it has taken a lot longer than I anticipated to make this happen. A lot longer. Holy moly! But I truly do believe that it is going to happen. If anything, I am more sure of that today than I have ever been. And there really are lots of optimistic signs. Things are changing because they have to change.

I have to say again how grateful I am that you are helping to move the ball forward. You know what we need most? We need to make people comfortable just talking about these things. A Social Taboo has developed re speaking frankly on these matters and people are social creatures. So, when some crazy person like me speaks up, the room gets real quiet real quick. That is what needs to change. When it does, there will be no stopping us.

Many Buy-and-Holders are good friends of mine. Many are smart, good people. My dad was the biggest Boglehead there ever was. He taught me never to invest anywhere but Vanguard. The people who work in The Stock-Selling Industry are hard-working and smart people. They want to help people, just as all the rest of us do. We have to help them out. We need to give them a little push and make them feel comfortable about doing the right thing.

It’s always darkest before the dawn. People need to look past this economic crisis and try to picture all the great stuff awaiting us on the other side of the Big Black Mountain. I cannot wait to see us all turn that corner. I am going to be very psyched to be working with all the people who today are trying to shout me down.

I’m a 60s guy, for good or for ill. Love is the answer, in my mind. I really believe that, as stupid as I know it sounds.

Rob

Comments

  1. says

    The efficient market hypothesis is an effective ruse. It bolsters the weak knees and ingrains a buy and hold paradigm. Such an approach is probably fine when an economy is growing i.e. the US economy from 1950-1990 or so. Now we have stagnant “growth.” In a shrinking or stagnant economy, investing is a zero sum game, meaning there’s a clear winner and a loser. In such times, we “sheeple” are “marks”. The rich and powerful can’t get more rich and powerful unless someone else (taxpayers, the middle class, pensioners, etc.) takes a loss.

  2. says

    Thanks much for stopping by, Prepster. I took a quick look at your blog and I like the concept a lot. I added it to my blogroll. I noticed that I am included in yours and that of course makes me happy. Thanks much for that kindness.

    You won’t find anyone more anti-EMH than me. I believe it has caused more human misery than any other mistake ever made in the history of financial analysis.

    That said, I don’t personally believe that this is a case of the rich deliberately taking advantage of the middle-class. There are lots of rich people who lost money in the crash and who are still following Buy-and-Hold strategies today. And there really are lots of smart and good people who believe in the EMH. I think they are wrong. I don’t think they are evil.

    There is one way in which I think the desire for profit comes into this. THe EMH was discredited by Shiller’s 1981 research showing that valuations affect long-term returns (there can never be overvaluation in an efficient market). At that time, the Buy-and-Holders should have started making sure to tell people that there is solid research coming to very different conclusions than theirs (while still putting forward the views they continued to hold to the full extent to which they continued to hold them, to be sure). They didn’t do that. If anything, the Buy-and-Holders became MORE arrogant and inflexible as the mountain of research showing they are wrong grew larger and larger. In an objective sense, that was truly shameful behavior.

    Even there, though, my strong sense is that the Buy-and-Holders were suffering from cognitive dissonance. They knew that something was wrong with their ideas but could not bear to face realities that caused them great emotional pain.

    Everyone wants to learn how to invest effectively. That includes the Buy-and-Holders. We very much need them on our side as they are hard-working and smart people who could do a lot to help us spread the word and to develop new insights once they convert.

    It’s terrifying to consider how much human misery has been caused by the Efficient Market Hypothesis. But I believe that there is a great deal of good even in this terribly flawed theory and that we are going to be able to mine this good in future days when we all make it together to the other side of the Big Black Mountain that stands before us today.I personally believe that Eugene Fama (the man responsible for the EMH) will go down in history as a giant once we are able to talk openly and clearly about what he got right and what he got wrong and to make positive use of the stuff he got right while ditching the stuff he got wrong.

    Thanks for stopping by, Prepster. I hope you will pay us future visits.

    Rob

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