Set forth below is the text of a comment that I recently put to a blog entry at this site:
There are extremely smart people in the investment industry and the ability to invest successfully in order to maximize returns would compel those extremely smart people to follow the money. If you really had discovered something so revolutionary, wouldn’t you have a strong vocal following by now?
Yes and no, Questions.
The people who work in this field have high I.Q.s. No dispute there.
But Shiller’s findings are truly “revolutionary” (that’s the word used in the subtitle of his book).
Most of the people in this field have spent years learning what is in the textbooks. The stuff in the textbooks is wrong. That’s always the case when there is a “revolutionary” advance.
So intelligence and experience can actually be a drawback here. The more study a person has directed to the old model, the less capable he is of understanding the case for why it is wrong.
And the more of a motivation he has to convince himself that the new model is not a huge advance.
Please read the quote from Machiavelli that I put in the “People Are Talking” section of the site. He points out that it is very hard for new systems to gain a foothold. That’s because there are lots of people with an intense desire to keep the old system going (they built their careers around their knowledge of the now-discredited, old system) and not too many with an intense desire to push the new system (it’s hard to make any money promoting the new system until there are a good number of adherents to it).
Buy-and-Holders are today using their intelligence and industry to stop progress. They have become the thing they once opposed. People tried to stop Bogle once upon a time just as Bogle today tries to stop me.
It won’t work. It cannot work. The advance is too big.
The smart thing for someone like Bogle to do is to abandon Buy-and-Hold and promote Valuation-Informed Indexing. No one cares that he made a mistake. No one. What people want is investing advice that works. Bogle played as big a role as anyone in building the Valuation-Informed Indexing Model. Once he endorses it, he gets credit for his huge contributions.
And Valuation-Informed Indexing isn’t a dead thing, like Buy-and-Hold. Valuation-Informed Indexing is the future.
Once Bogle realizes that and says so publicly, lots and lots of other smart people are going to join the program. There’s an old saying that “the harder they come, the harder they fall.” It has been very, very hard to knock down Buy-and-Hold. But once it falls, it falls entirely and completely. The transition will be short because there is now a mountain of material showing the dangers of Buy-and-Hold and the wonders of Valuation-Informed Indexing.
My guess is that it will be the next price crash that will start the collapse.