Set forth below is the text of a comment that I recently put to the Goon Central board:
There’s just nothing of value to be learned in a circular argument You are pointing at any important truth with these words. It IS a circular argument.
If the market is efficient, everything you say is so.
If valuations affect long-term returns, everything I say is so.
The pre-1981 research supports the idea that the market is efficient. The post-1981 research supports the idea that valuations affect long-term returns. Where someone stands on all these questions depends on whether he is aware of the post-1981 research and has thought about it enough and explored its implications enough to know what it signifies.
Some of us have. Some of us haven’t. It’s hard for us to communicate with “the other side” because we start from entirely different premises. As a society, we are in a transition period. The majority still believes that the pre-1981 research is at least generally on the mark. And the minority believes otherwise but generally keeps its mouth shut.
THAT IS THE PROBLEM.
The minority keeps its mouth shut because of the social pressures imposed when any of us speak up about the implications of the post-1981 research. What makes me different is that I keep my mouth shut less than anyone else. That wasn’t always so. I kept my mouth shut entirely prior to May 13, 2002. And I kept my mouth shut about lots of things in 2003 and 2004 and 2005 and 2006 and 2007 and 2008 and 2009 and 2010 and 2011 and 2012. But it is true that I keep my mouth shut about less and less all the time. Why? Because I have learned from personal experience that keeping one’s mouth shut does not solve the problem.
Valuation-Informed Indexing is superior to Buy-and-Hold. In every possible way. There is zero chance that even a single human being would prefer Buy-and-Hold once he came to understand Valuation-Informed Indexing. This is the biggest advance in our understanding of how investing works in the history of investing analysis. It is bigger than all the other advances combined. We will be living in Investor Heaven after we achieve this advance. There is not one of us on either “side” that does not want to live in Investor Heaven.
But there is always much resistance to a change when the change is so big and profound. All the textbooks need to be rewritten. People who are big shots today will not be big shots tomorrow. InvestoWorld is in the process of being transformed from top to bottom.
It is a good thing. It is a very, very, very good thing. Valuation-Informed Indexing is the culmination of Jack Bogle’s boyhood dream, and this fellow dreamed big. Now we are here.
The only thing holding us back is — We need to acknowledge what we have done. We have to stop being ashamed that we have learned how to reduce stock investing risk by 70 percent and start celebrating this wonderful reality.
We are a society in a state of transition. We need to get from Point A, a horrible, dark, smelling, scary place, to Point B, the place where each and every one of us deep in his or her heart wants to be tomorrow.
Rob Arnott tells me that the answer is for me to be less strident, to pull it back a few notches. to stay true to my message but to say if differently.
He’s wrong. He’s a great man. I respect him. I am honored that he tells me that my investing ideas are the right ones. I believe that he offers this advice to me in good faith. But I will not follow that advice. He is wrong.
How do I know? I know because of what I have seen with my own eyes.
The Buy-and-Holders are hurting. They are hurting in a terrible way. Those of us who understand why they are hurting have an obligation as people who respect our Buy-and-Hold friends and who care about our Buy-and-Hold friends to hold out the hand of kindness and help these people out. Rob thinks that is what he is doing. BUT HIS APPROACH IS NOT GETTING THE JOB DONE.
The hurting continues. This is not acceptable. This must change.
The Buy-and-Holders really do not believe in Valuation-Informed Indexing. They have every right not to believe. And they have every right to present every argument they can muster in criticism of Valuation-Informed Indexing. And we are obliged to show them the respect and gratitude they have commanded with their very important and well-intentioned efforts. All that is so. All that should go without saying.
But not death threats. Not board bannings. Not tens of thousands of acts of defamation. Not threats to get academic researchers fired from their jobs.
We don’t tolerate that stuff. Not if we care about our Buy-and-Hold friends. We don’t rationalize failing to speak out when we know that failing to speak out may lead to prison sentences for our Buy-and-Hold friends. No way, no how. That cannot be.
Rob Arnott is wrong on the process question and I am right. The way to play this is to bring the Campaign of Terror to an end and THEN to adopt the least strident position possible. Rob is 100 percent correct to fault stridency. But failing to speak up about criminal acts is not charity, it is cowardice. Rob is not speaking up not because he is holding back in charity but because he is AFRAID to speak up. He’s probably not aware that that is what is going on. But it is my sincere belief that that is indeed the case. My good friend Rob Arnott is hurting my Buy-and-Hold friends by failing to speak up, not helping them.
I will continue to speak up.
I will talk about all the wonderful things that the Buy-and-Holders have taught us all. Always. That will never change. That part is already written in the books.
But I won’t be a party to actions that in the long time are going to put my Buy-and-Hold friends behind prison bars. Not this boy.
There are two things that need to happen for this circular argument to become a productive one. The people who understand the research need to work up the courage to stand up to the Buy-and-Holders and demand (NOT ASK!) that they honor our social norms re how reasonable people engage in discourse. And the Buy-and-Holders need to lose the attitude, they need to accept that, as strongly as they believe what they believe, there is always that small chance that they are wrong and they thus need to let the other guy have his say.
My best wishes to you and yours, Yip.
We are not enemies. We are friends. We are all on the same side. We are all in the same boat. If this country goes down, I go down with it. So I am rooting for you. Your success re this matter is my success too.