This one addresses a sensitive issue that is often wondered about by people thinking of endorsing Valuation-Informed Indexing but rarely mentioned aloud. Wade never told me that he was afraid of getting sued. I don’t think he was. But he was clearly afraid of how “crossing” the industry leaders could do harm to his hopes for career advancement. What happens to those who ignore the friendly advice to back off? Do we get sued?
People worry about this. Here are some words from a blogger who is sympathetic to my investing ideas: “As your promotion of Valuation-Informed Indexing gathers steam–and I fully expect it will–you have to be prepared for The Backlash. Every concept has entrenched interests, and they’ll fight ugly if they feel threatened. What you have to be careful about is that you don’t provide fodder for future lawsuits. When you’re a voice in the woods, no one is paying much attention to what you say. But when your ideas gain acceptance, the technocrats (hitman in business suits working for the entrenched interests) will be out scouring the countryside (and the world wide web) for anything they can go after you for legally. Legal action is the last preserve of the doomed, and they will use it as a last desperate attempt to stay afloat. Attack ideas, and you’ll invite debate; attack people, and you’ll invite lawsuits. I’m not saying you’re attacking people, but you want to avoid the appearance that you are. The web may be the bastion of free ideas, but it’s also a rich source of legal evidence.”
No one else has phrased things quite as directly and darkly as that. But others have expressed concerns to me that they don’t want to call out the Goons on their tactics because they may have friends in high places and you never know.
I’ve described Mel Lindauer and John Greaney and those who post in “defense” of their terrorist tactics as “Goons.” I’ve said that Wade Pfau engaged in an act of financial fraud when he said that there is no need for the Old School safe-withdrawal-rate studies to be corrected. I’ve characterized John Bogle’s failure to help us with the Lindauer matter as “shameful.” So I’ve named some names. Could lawsuits be directed at me?
I don’t think it is likely. But I don’t rule it out. I do think it is possible.
I understand the issue about naming names. When it is possible to avoid doing that, it’s better to avoid doing that. But I am a journalist and this is an important story (I view it as the most important economic and political story of our day). Journalists have to name some names to tell the full story they are telling. The Goons didn’t threaten just anyone with the loss of a job. They threatened an academic researcher who has published research showing the dangers of Buy-and-Hold. They saw a threat and they went after the guy who posed the threat. If we cannot trust academic researchers to tell us the straight story about stock investing, we are in big trouble. This is a public policy issue and the names of the persons making the threats and being threatened are part of it.
In my pre-investing days I was described as a “teddy-bear-type poster.” I am by nature a person who avoids conflict. So I am not somebody who likes the nastiness in which my efforts to tell people about the realities of stock investing have become embroiled. But that’s the story, isn’t it? No one has been able to identify any flaws in the Valuation-Informed Indexing concept. The problem for ten years has been that people who gained fame or money promoting Buy-and-Hold want the contender to the throne to go away. As a society, we cannot let that happen. We need to get the word out to middle-class investors re the first true research-based strategy. To the extent that that absolutely requires the telling of some unpleasant truths, we need to be willing to go there. We should never spend more time there than necessary. But we need to go there when there is no other way to get the job done.
But there is a risk of lawsuits when you step on big toes. And the toes of the Big Shots in The Stock-Selling Industry are some of the biggest toes around. So, even though there is no legitimate case against me, there is a risk here. I have already been denied the ability to make a living for 10 years by the Goons and the web sites that have permitted their use of brutally abusive tactics. It is possible that leaders in this field will try to crush me financially with lawsuits. It is possible they will succeed.
I don’t have any choice but to proceed to make the case for the first true research-based approach. Shiller’s research shows that our free-market economy cannot long stand unless we make the change. We need to move ahead. Of course, I am not the only one who is scared about what will happen to me if I do the right thing. Lots of people who in other circumstances would be helping me have refrained from doing so because they are scared too. Shiller published his research in 1981. We wouldn’t be still fighting these battles in 2012 if there were not a lot of people who are very scared to give public voice to their true beliefs on how stock investing works.
That’s both a discouraging thought and an encouraging thought.
It’s discouraging because it is the decision of many good and smart people to silence themselves that has caused this problem. In ordinary circumstances, the idea that anyone could be financially ruined because he presented the world with a superior investing strategy would be outlandish. Valuation-Informed Indexing lets people earn far higher returns at greatly reduced risk. It shows people how to retire years earlier. It takes most of the emotion out of the investing experience. If we could publicize this approach, we could greatly stabilize the economy. How could there be even one person who could object to all this, much less think of bringing lawsuits to stop it?
The problem is that there is so much money in this field. Where there is money, people become associated with particular ways to bring in money. And, when those ways work, the people who receive the money don’t like the idea of those ways being challenged. Buy-and-Hold is a gravely flawed strategy. It has caused more human misery than any earlier idea in the history of personal finance. But it has brought a lot of wealth to the people who have promoted it. Those people don’t view the question of whether Buy-and-Hold or Valuation-Informed Indexing is superior as an interesting intellectual puzzle. They see my efforts to get the word out to middle-class people re what really works in the long run as a threat to their gravy train. They don’t like me. And there’s not much they would not do to stop me.
But how much can they do?
I see risks in lawsuits for those trying to keep people from learning about the dangers of Buy-and-Hold.
The biggest risk is that the filing of lawsuits will generate publicity. I have a lot of material at this web site documenting the research and the many expert statements that have been made supporting Valuation-Informed Indexing. The Buy-and-Holders don’t want that getting out. Bringing lawsuits might start a chain of events that would lead to it getting out.
The other thing is that lawsuits often proceed slowly. Buy-and-Hold was much more popular before the price crash than it is today. It is much more popular today than it will be after the next price crash. It might be that there will be a lot of people angry at the Buy-and-Holders after the next crash. Things might not turn out well for the Buy-and-Holders if they bring lawsuits today that are not resolved until after the next crash. And there’s no way of knowing when that next crash will come.
Yet another factor is that there are today a lot of experts in this field who are anxious to move on to the post-Buy-and-Hold Era. Lots of people know that Buy-and-Hold doesn’t work in the long run. They see opportunities to establish themselves as experts in whatever strategies will become popular next. These people may help lots of investors to learn how they were fooled by the marketing tricks that were used to sell Buy-and-Hold. That could make lawsuits problematic.
My bottom line on this matter is that I see no way to avoid moving forward. The Goons have made clear that there is zero chance that they will let me post at any investing board or blog without harassing me until I agree to post dishonestly on safe withdrawal rates (they want me to say that there is no need for the discredited studies to be corrected). If I refuse to go along with the Goons, I might get sued. But what if I DO go along? I might get sued in that event too! It would be an act of financial fraud for me to say that I believe that the discredited retirement studies don’t need to be corrected when I obviously do believe that they need to be corrected. Couldn’t someone whose retirement failed because I agreed as part of a deal with the Goons not to post honestly sue me to recover his losses? It sure seems so to me.
This possibility reveals the complete craziness of our current circumstances. Buy-and-Hold was discredited by the academic research 30 years ago and yet its advocates continue to this day to promote it as a research-based strategy. That’s dishonest. Engaging in dishonesty about a money-related matter always brings with it the risk of being sued. But being honest is risky too so long as The Buy-and-Hold Machine possesses enough power to silence those trying to get the word out about the last 30 years of research. Hoo boy!
My view is that our problem is a political problem, not just an economic problem. If every investing expert who has advocated Buy-and-Hold were sued for the damages he caused to millions of investors, the large group sued would collectively not have enough money to cover the bill. My guess is that we are going to need legislation to work out these problems. Significant sums of money will be collected from the industry as partial payment to those who have been done financial harm. But we won’t be able as a society to offer full compensation because it is just not possible to do so. You’ve heard of how some banks are too big to fail? Perhaps it could be said that The Stock-Selling Industry is today too unethical to be held accountable for the results of its huge act of collective fraud.
It depresses me to talk about this aspect of the question. My guess is that it depresses you to hear about it.
Every time I start to feel down, I try to focus on the positive side of the story. We are the most blessed group of investors who ever lived. Valuation-Informed Indexing is going to change all our lives for the better in many important ways. All the ugly aspects of the story are going to be forgotten in a short amount of time while the life-affirming parts will be enriching all our lives for many years to come.
And please understand that the people who I am worried today may sue me are heroes of this story for what they did on the substantive side in the days when it really did look like Buy-and-Hold was the real thing. I need to act tough when the Goons come around because Goons don’t respond positively to polite behavior. But as a society we need healing. We don’t get healing by hating those who have attacked us. We get healing by reaching out and trying to understand where they are coming from. The way I sometimes put it is that we need to be honest up to the point at which it becomes unloving and we need to be loving up to the point at which it becomes dishonest.
I might get sued by my friends (I am not being sarcastic here) in The Stock-Selling Industry. But the full truth is that I think of many of those people as heroes. If they don’t sue me or if they try to sue me and fail, I am going to have a blast working with my smart and good Buy-and-Hold friends to rebuild our broken economy and to spread the word far and wide about what really works in stock investing.
Pray for me! And please pray for Bogle and all the others too! We are all in this together. We all are fighting for the same things in the end. There’s plenty of credit it go around.
Don’t sue me, Jack! I love you, man!