Everyone wants to invest successfully. So there’s lots of money to be made in helping people do so. If Valuation-Informed Indexing is as superior as Wade Pfau’s research shows it to be, there should be hundreds of businesses being formed to spread the word in one way or another. Instead I am talking all the time about the Goon Squads who follow me around everywhere I post on the internet. How can this be? If I knew of a better way to invest, the world would beat a path to my door. No one would listen to the Goon Squads. There’s something weird going on here.
I will reveal the secret to solving the mystery by telling you a story about my mother and my older brother Richard.
Richard is 65. He has been smoking two packs of cigarettes since he was 16. My mother died a few years ago. In the years before she died, she was worried about how things were going to go after she passed from the scene. One of the things she worried about was my brother’s health. She would say to me: “Why doesn’t he quit? He knows that smoking that much is bad. He’s so smart!”
Of course he knows. We all know that the bad things we do to ourselves are bad. The trouble is that, once we find emotional comfort in some bad behavior (for me it’s eating too many chocolate chip cookies, for my mother it was playing the slot machines in Atlantic City), we use our brains not to avoid the bad behavior but to rationalize it. My brother can tell himself that we all die from something, if it’s not the cigarettes that get him it will be something else. I can tell myself that I am healthy except for the weight thing and that the extra weight hasn’t caused me to have a heart attack yet. My mother could tell herself that, if you count the prizes she won at the casinos, she probably broke even in the end. We all break even with the casinos in the end. In our minds.
I don’t say that people shouldn’t be able to sell cigarettes or chocolate-chip cookies or chances to win a million dollars at the slot machines. Making that stuff appear as appealing as all get-out is all part of the wonderful game, so far as I am concerned. I say that we have a right as American citizens to ruin our lives however we please!
But I say that The Stock-Selling Industry crosses a line when it tells us that there is some mystical, magical research somewhere that shows that there is no need to consider price when buying stocks.
There is no such research. You don’t have to take my word for it. Wade Pfau holds a Ph.D. in Economics from Princeton. If there were any research supporting Buy-and-Hold, he would have found it. He looked. He looked hard. He found nothing. That’s because there is nothing.
It’s a lie.
We can use softer words. We can say it’s marketing. Like the idea that you are really going to win the lottery. Like the idea that eating cookies will make your troubles go away. Like the idea that smoking eases stress in anything but the most temporary way.
People trying to sell us junk tells lies all the time. But the lie that The Stock-Selling Industry tells us is an especially pernicious one.
We all know the other side of the story when it comes to cigarettes and cookies and slot machines. A lot of us fall for the lies (and have a great deal of fun doing it!). But we all know the other side of the story. We are exposed to different sources of information. Doctors tell us the truth about cigarettes. Nutritionists tell us the truth about cookies. Friends tell us the truth about casinos.
Who tells us the truth about stock investing?
Just about no one does. There’s too much money in this field for the people who make a buck telling the lies to permit the other side of the story to be told. So it is made clear to people like Wade Pfau that they either get with the program or they find another line of work. This is a field in which the academic research is cited on a daily basis. But not honestly. Honest reports of what the research says would undermine the marketing slogans. Stocks are not always best for the long run — there are times when money market accounts offer a better deal. Timing always works — so long as it is the long-term variety. There really is such a thing as a free lunch — Valuation-Informed Indexers earn far higher returns while taking on far less risk. They always have. They always will. Learning is a free lunch. That’s how it works in the field of stock investing as much as that is how it works in all other fields. Learning how stock investing works is a free lunch. Learn how stock investing works and you’ll be able to retire many years sooner. You’ll be able to live a richer life.
I want to be able to teach millions of middle-class people how to live richer lives. That’s the work I’ve taken on. That’s why the Buy-and-Holders hate me with such a burning passion. The more people who come to learn the truth, the fewer there are to fall for their marketing slogans.
It’s not just that the experts in this field lie to us. It’s that we want them to lie to us. So they can tell us the most obvious lies imaginable and get away with it. Who is going to call them on it? The people begging for more lies?
We’re in a trap and we need to find a way out. The only way out is through learning. Fewer people smoke today than in earlier days. We got accurate information out to people and they elected not to take up the habit. Some couldn’t give up the habit entirely but cut back. Those who haven’t cut back are thinking about it. Perhaps some day the time will be right.
Investors are always going to fall for Get Rich Quick schemes. I cannot change that.
But I think that I should be able to call people out on it when they claim that there is research supporting their mumbo-jumbo marketing claims. If we cannot do that, there’s really no hope. We all find emotional appeal in Get Rich Quick investing schemes and now we have “experts” telling us that there is “research” supporting those emotional impulses. And there are gangs of internet Goons who direct savage smear campaigns at anyone who tells the truth about what the research says. You can’t beat that. That’s too much. If that remains our story, the free enterprise system goes down.
I have been able to persuade people of the merits of following research-supported strategies when I have been able to find places that for a time permitted civil and reasoned discussions of investing. But the Buy-and-Hold Goons want no part of civil and reasoned discussion. So those places don’t last long. Where do we go from here?
If the experts would tell us the truth, we all would be better investors. But there is an awful lot of money in it for them if they keep repeating the Buy-and-Hold lies.
If we insisted that the experts tell the truth, they would have to do it. But how can we insist when we don’t understand the realities ourselves? We would have to become informed to insist. And we cannot become informed without first insisting. It’s a Catch-22.
My hope is that a deepening of the economic crisis will melt hearts.
Stock investing is intellectually easy. It is emotionally hard. We need a new group of investing experts who tries to help us overcome our negative emotions rather than tries to make a quick buck off of exploiting them.
I don’t want to outlaw cigarettes. But I want people to be able to report honestly that smoking causes cancer.
Buy-and-Hold Investing causes failed retirements and economic crises.