I’ve been sending e-mails to various people letting them know about my article describing the intimidation tactics used by Buy-and-Holders to stop Academic Research Wade Pfau from publishing further research showing the superiority of Valuation-Informed Indexing investing strategies over Buy-and-Hold strategies. University of New Hampshire Law Professor Tom Field responded: “You seem to be a class act, Rob, but I’m not sure of the sense in which you want to pull me in.” The text of my reply is set forth below:
Thanks for your exceedingly kind words.
There is no particular way in which I am trying to pull you in. It’s perfectly fine with me if you just take in the information, conclude that it is “interesting” in some way, and move on with your life. That’s how the vast majority of the people who receive the e-mail are responding. In fact, the vast majority do not go to the trouble to send such kind words my way. So you have provided help by lifting my spirits a bit. That’s real. That counts.
The entire situation is so “out there” that almost no one can believe the plainly stated facts. The Buy-and-Holders did a wonderful thing. They turned investing analysis from guesswork into a scientific enterprise. Our free market economic system (and all those of us trying to make a living within it!) is going to benefit in huge ways in days to come as a result of what people like John Bogle and Eugene Fama and Burton Malkiel and all these others did. That’s the good news. It’s important that everyone keep the good news foremost in mind when trying to make sense of all this.
The bad news is that the people who developed Buy-and-Hold made a mistake. They made it for perfectly understandable reasons. The research they needed to get everything right was not available to them at the time they did the development work. So they got one important thing wrong while getting lots of other important things right for the first time anyone got these things right. Then Shiller published his research filling us in on the important thing they got wrong.
If only he had done this 10 years earlier we would all be living in an economic Garden of Paradise today! Unfortunately, lots of people had already staked their careers on the accuracy of the Buy-and-Hold Model and millions of dollars had been spent promoting it. So a decision was made (not formally and never publicly articulated) to pay lip service to Shiller’s findings, to acknowledge that he had done something but to pretend that what he had done was not a big deal and could be ignored for practical purposes.
In 2008 that unfortunate call caught up with us. We now are in an economic crisis as a result and, in the event that Shiller is right (there is today a mountain of evidence showing that he is), the crisis will become the Second Great Depression over the course of the next few years. There is obviously not one person alive who wants to see that happen. But there are also very few who dare to give voice to the truth of the matter in clear and firm and bold and understandable and uncompromising terms. So we keep drifting downward even though there is not one soul alive who wants to see that happen.
My blog entry from yesterday reporting on Rob Arnott’s reaction to the e-mail tells the story well:
Rob is a highly influential thought leader in the field. He served as the editor of the Financial Analysts Journal for four years. He reports that he cannot get an article that he co-authored with a Nobel Laureate published in a journal because it discredits the Buy-and-Hold orthodoxy. Even with my ten years of experience with similar realities, I find that one hard to accept. He reports that he knows of young professors who wanted to do honest research on important new ideas and who were warned that their careers would be derailed if they did so. Yikes!
I’ve tried all the normal ways of getting the message out. I built a discussion board that in 2000 was the most important board in the personal finance area available on the internet. We had hundreds of people at that board who wanted to explore these issues. But the Buy-and-Holders just would not permit it. They burned the entire board to the ground. The level of emotional pain that they are experiencing is just off the charts. There’s never been anything like this. The closest analogy I have been able to make is to the way people felt about segregation in the early 1960s. Every single person knew in his or her heart that it was wrong. But few dared to speak out because “that’s just the way it is.” The feeling was — There is nothing that can be done, so why try? And so the problem continued to eat our society alive.
We eventually overcame segregation and we eventually are going to overcome the Get Rich Quick aspect of the Buy-and-Hold concept. It’s going to be people who are going to make the difference. There is going to come a time when the human misery will become so great that people are just going to work up the courage to speak out. Once a number of us do, there will be a tipping point and then we all will speak out and share what we know and there will never be one person who will ever want to return to the dark economic times we are living through today.
Here’s what I ask. Keep this in the back of your mind as you go about your daily affairs. If at some point in your travels, you run into someone who you think might have an interest in this, share the e-mail or a link to my site with him. It might be a journalist. It might be a policymaker. It might be an economist. It might be an investing expert. It might just be an ordinary middle-class person trying to plan for a decent old-age retirement. Just pass the information along. You don’t even need to endorse it, just let the person know that you saw this and that you think that perhaps he or she would want to see it too.
That’s how I believe we will turn this around. We cannot count on the experts re this matter because they are compromised. They are not compromised because they want to be be. They just are caught up in circumstances beyond their control. People have families to feed. People feel that they cannot afford to destroy their careers by being too honest. Everyone is on the same side. There are no two sides to this. So we just need to find some means to gradually spread the word over time and then one day the ones who are holding things back will just wake up in the morning wanting to help move things forward. Then it’s all over! The good stuff is so good that it will make the bad stuff seem insignificant in comparison in not too long a time. This is a positive story!
Anyway, that’s where I am coming from. Please help in whatever way you can and please don’t worry about it at all if there is nothing that occurs to you at this moment. I have confidence that something will occur to enough of us somewhere down the line to get things back on the right track. We will collectively figure out a way to make all of our lives better and to live up to the ideals we all struggle to follow to the best of our abilities.
Thanks also for giving me a reason to structure these thoughts in a way that I hope makes at least a tiny but of sense.
And please enjoy a safe and warm and loving holiday season!
Programming Note: The blog will return on Wednesday, January 2, 2013. I wish all my internet friends (both the Valuation-Informed Indexers and the Buy-and-Holders!) a peaceful, happy and friend-filled Christmas.