I’ve posted Entry #86 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called You’re Not as Rich as You Think.
Juicy Excerpt: Say that you were the umpire at a baseball game and that you were making a sincere effort to call the plays properly. Say that you were keeping track of the score of the game and that you knew it to be six to two in favor of the Phillies based on your calls. But you look up at the scoreboard and see that the fans were being told that the score was five to three in favor of the Cardinals. Would you be annoyed?
We all should be annoyed that the neutrality of our free market has been taken away from us. The stock market should price our portfolios at fair value. For it to do that, we need to inform investors of the realities of stock investing that the Buy-and-Holders don’t want getting out.
what says
The score is the score, if you are an umpire such as described you are probably nuts.
Rob says
THe statement “the score is the score” is logic. It leaves out emotion. Humans apply both logic AND emotion in their assessments of things.
Say that Philadelphia is playing the Cardinals in the World Series. The Philadelphia Inquirer desperately wants to increase subscriptions and knows that the vast majority of people who see its newspaper offered for sale on the way to work want the Phillies to win Game One. The Cardinals win 7-3. But the Inquirer reports on page one that the Phillies won 8-2.
What happens? They sell lots of newspapers! More people want to read a story about the Phillies winning 8-2 than want to read a story about the Cardinals winning 7-3. The marketing guy who said they should make up a story to make the people happy is triumphant.
But only for a time. The reality principle intervenes. People come to understand that the paper ran made-up news on its front pages. The paper loses credibility. In the long run, it sells fewer papers as a result of its deception, not more.
That’s where the Buy-and-Holders are today, What. You brag all the time about how popular the Bogleheads Forum is today. It is indeed popular. The Bogleheads Forum has banned honest posting on what the academic research of the past 30 years say about how stock investing works. That is thrilling to people who have followed Get Rich Quick strategies. These people are scared to death that stocks may perform in the future somewhat as they always have in the past and the owners of the forum offer reassurance that there is no way that will happen, Get Rich Quick will prevail this time.
But it won’t. And what happens to the Bogleheads Forum then? When all the made-up fantasy worlds dissolve into nothingness?
The score is the score, you say. I have said something similar at times. I have said “The data is the data.” Or “the numbers say what the numbers say.” Or “the data is public information, anyone who wants to check what the data really says about safe withdrawal rates may do so, the same as I did some years back.”
The score really is the score, What. The logic is impeccable. The problem is that, when you are dealing with humans, strict logic DOES NOT APPLY. Humans are emotional, What. Humans often believe not what logic tells them but what they want to believe. Humans often retreat to fantasy lands.
That’s what the Old School SWR studies are all about. They are fantasy-land studies. They are studies for people too smart not to understand that valuations matter who need reassurance before they can feel comfortable planning their retirements according to the dictates of pure Get Rich Quick strategies.
The score really is the score. Re this we are in complete agreement. I wouldn’t quite agree with you that the umpire who reports the score wrongly because of intense social pressures imposed on him to do so is “nuts.” You know what he really is? He is human.
We need an investing strategy that acknowledges that it is humans who invest in stocks, not logic machines. The title of my book on investing is “Investing for Humans.” You have summed up the 10 years of discussions with your phrase “The score is the score,” What. It is. And it isn’t. Both things are so, depending on how much emotion you and others are feeling at the time.
The safe withdrawal rate is the safe withdrawal rate. Except when you really, really, really, really, really, really want it to be something else.
Rob
Rob says
There are two schools of thought as to how stock investing works. One was founded by University of Chicago Professor of Economics Eugene Fama. The other was founded by Yale University Professor of Economics Robert Shiller. The University of Chicago is the foremost proponent of Rational Man economics. Shiller is a believer in Behavioral Finance.
About 90 percent of investors belong to the Fama School (Buy-and-Hold). Perhaps 10 percent belong to the Shiller school (Valuation-Informed Indexing). Should people belonging to the different schools be permitted to talk to each other?
The score is the score. There should be no harm in people talking to each other so long as it remains true that the score is the score.
But what if it makes many of us emotionally uncomfortable to hear a different point of view being expressed? What if hearing a point of view to which we have never before been exposed makes us doubt whether the score really always is the score?
What happens then?
Rob
what says
It would make sense to be uncomfortable listening to a crazy person.
Rob says
That’s so.
But can you be 100 percent sure that you possess all the information you need to identify properly who is the crazy one?
There’s the wild card.
Rob
what says
Yes, I am supremely confident of that. I am also confident that I can differentiate a crazy person with a nonsensical message and one with a message that has some merit.
Your message has merit but….
Rob says
I don’t understand your comment, What.
Rob