Set forth below is the text of a comment that I put to the discussion thread for a Guest Blog Entry I recently wrote for the Invest It Wisely site:
But no matter what you tell people, there will always be run-away bear and bull markets–no matter what. You can’t change human emotions, after all, no matter what analyzing tool you try to convince them with.
There’s a mountain of historical evidence supporting what you are saying here, Andrew. I am just idealistic enough to believe that you are wrong.
Before man learned how to fly, there were people who said “man has never known how to fly and never will.” Before man learned how to harness the power of electricity, there were people who said “man has never overcome darkness with light and never will.” Before man began listening to the Beatles, there were people who said “man will always listen to Perry Como and there’s nothing that four moptops playing in German bars are ever going to be able to do about it.” Things change. Sometimes a lot. Sometimes for the better.
I take the other view. I say that there is zero chance that we will not make this change. The reason is that it is more important today to know how stock investing works than it has ever been in any earlier time in U.S. history. The same thing that caused today’s economic crisis caused the Great Depression — insanely overpriced stocks. But what we saw in the Depression was a small thing compared to what we have ahead of us if we don’t make this change within the next few years.
In the late 1920s, most stockholders were rich people. Few middle-class people invested in stocks. That wipeout of the rich did great damage to our economic system. But think how much worse it is going to be in day when middle-class people are required to invest in stocks to have any hope of being able to retire someday.
We have passed the point of no return with this thing. We either fix stock investing or we watch our entire economic and political system crumble to the ground. My bet is that, as conditions continue to worsen, there are going to be brave people who are going to step forward and make the case for fixing stock investing. And sooner or later the pain that the rest of us are experiencing will become great enough that we will gladly go along. Why wouldn’t we?
The Great Paradox is that Buy-and-Hold became impossible with the development of Buy-and-Hold. Buy-and-Hold took us out of the dark ages. It is the Buy-and-Holders who said that we should root our strategies in the historical data and the academic research. Once you do that, you have a way of testing whether strategies work or not. We are in the process of making stock investing a scientific enterprise.
So strategies that fail scientifically fail, period. Buy-and-Hold as put forward in its first draft incarnation is in the process of has failing scientifically. Buy-and-Hold has killed itself. The people who came up with the idea will be very happy about that when they gain some emotional distance and are able to think clearly about these things.
We are going to move from Buy-and-Hold to something better. The Buy-and-Holders are going to get credit for their huge contributions, contributions which made this forward movement possible. But we are going to move forward. Stocks are not going to be a risky asset class in the future. We are all going to be earning far higher returns at greatly diminished risk. We are going to see the greatest period of economic growth ever experienced in our history. And we are going to someday look back at the quarrels some of us are engaging in today and wonder whatever could we have been thinking?
The only thing that has held back this advance for 30 years is that the advance is so huge that it frightens people. There are lots of people who have grown accustomed to the old way of thinking about stock investing and it scares them to consider moving forward into a future so much brighter than anything we have ever seen before.
They’ll get over it. If you look at our history, you’ll see that people have resisted all such major advances. But we always get over our feelings of resistance. We always choose the light over the darkness, after lots of fretting and stammering and questioning and shyness and hesitation.
We are working our way through a process. Things need to get very, very, very bad before they can get very, very, very good. That’s because it is experiencing the bad that gives us the courage to accept the need to move forward into the good. It’s not an accident that it’s always darkest before the dawn. There’s a reason why it always plays out that way, why that is the only way it ever can play out.
Humans were created in such a way as to resist major change, even wonderful change, until things reach a point where they have absolutely no choice but to accept their good fortune. Look around you and you can see evidence everywhere you turn that conditions are getting to a point where we will soon have no choice remaining open to us but the one that makes all our lives better and richer and more fulfilled than we ever in earlier days imaged was possible. Such a fate! Why did this have to happen to us?
But I could be wrong, right? I’m biased. I never went to investing school. I never managed any multi-million-dollar fund. Im just some guy who figured out how to get stuff posted on the internet sharing with you what I have come over the first nine years of our discussions to believe about where all this stuff is headed. The true and complete answer is that we will all decide where this takes us by the decisions we make on a day-by-day basis. Maybe I am right, maybe I am wrong. We’ll see. It’s not knowing for absolute sure that gives living life its kick.
My bet is on the humans. I’ve come to know quite a few of them over the course of my 54 years and the encouraging truth is that, despite some truly horrifying flaws (Perry Como!), a good percentage of the humans end up not being such bad eggs in the final analysis.