Set forth below is the text of a comment that I recently put to another blog entry at this site.
Roger Wohlner, Owner of the The Chicago Financial Planner blog: Isn’t this all just a bit over dramatic? C’mon this is investing, not the situation in the Middle East, the war on hunger or poverty, or most importantly the state of Green Bay Packer football.
Thanks much for stopping by, Roger. We very much need to hear fresh viewpoints.
I don’t believe that I have presented an overly dramatic statement of the case.
It was the relentless promotion of Buy-and-Hold strategies that was the primary cause of the economic crisis. This can be shown with numbers. Stocks were priced at three times fair value in January 2000. That means that we had $12 trillion worth of Funny Money floating through our economy at that time. Those who have followed the academic research of the past 32 years knew that that money would be disappearing from the economy sometime in the first decade of the new Century. Disappear it did. And, when it did, we saw tens of thousands of businesses fail and millions of workers lose their jobs.
That’s can never happen again once we open the internet up to honest posting on safe withdrawal rates and many other critically important investment-related topics. Stock prices are self-regulating so long as honest posting is permitted. Once we permit honest posting, we are going to see hundreds of academic researchers publishing honest research. We are going to see thousands of calculators developed giving accurate numbers for use in financial planning. We are going to see all the textbooks in this field rewritten. We are going to see middle-class people retiring many years sooner than they they ever before imagined possible. We are going to see people who are afraid of stocks today investing in them because we have transformed them into a virtually risk-free asset class. It’s good stuff piled on top of good stuff piled on top of good stuff once we permit honest posting. We are the luckiest generation of investors ever to walk Planet Earth.
Please compare that to the situation we have today. People are losing confidence in our political system because it no longer works for them. People have saved for decades to provide for their retirements and they are now seeing the money disappear because of the trickery of the Wall Street Con Men. There is a REASON why we have laws against financial fraud. It is because people who came before us saw how much damage it does and adopted laws to steer us away from it. Those people were wise. We should be heeding their warnings. We are seeing political friction from the left (the Occupy Wall Street movement) and the right (the Tea Party movement). We need to restore trust in our political and economic systems. We do that by shooting straight with people.
Would you let me post a Guest Blog Entry at your blog reporting on the death threats and the board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs? My guess is that you would feel uncomfortable doing that.
It’s because we humans have certain ethical standards that we have to observe or we start to hate ourselves. Those standards apply in all fields other than the investing advice field today. They do not apply in the investing advice field. That state of affairs cannot continue indefinitely. Either we need to invent a new type of human, one that can lie without remorse about things that cause millions of people to suffer horrible life setbacks or we need to permit honesty and integrity and accuracy and good faith in this field of human endeavor.
Why do we have tests that people have to take before becoming financial planners?
It is because financial planning MATTERS.
If it matters, it matters enough for us to want the professionals in this field to get the numbers right.
The errors in the Old School safe withdrawal rate studies became public knowledge on the morning of May 13, 2002. They should have been corrected by the morning of May 14, 2002. Had that happened, we would all be living in the greatest period of economic growth ever seen in our history. The peer-reviewed academic research that I published with my friend Wade Pfau (Wade holds a Ph.D. in Economics from Princeton) shows millions of middle-class investors how to reduce the risk of stock investing by 70 percent. Knowing that would give people hope and optimism for the future. But the Buy-and-Holders cannot permit anyone to hear about that research because it makes them “look bad” for having gotten the numbers so horribly wrong for so many years and for having failed to correct their mistakes for so many years.
It matters big time, Roger.
It obviously means a great deal to the Buy-and-Holders that the research of the past 32 years be hushed up, does it not? Why does it matter so much to THEM? They SEE that it matters a great deal indeed.
The work we have done in the past 32 years brings us to the end of a long journey. Humankind has been trying to understand how stock investing works for many, many years. The Buy-and-Holders got us halfway there. The Valuation-Informed Indexers have now travelled the other half of the football field. The only thing that is holding us back at this point is that the Buy-and-Holders have permitted their pride to interfere with their clear thinking. Deep in their hearts, the Buy-and-Holders want to help people and to do good work. We are helping them as much as we are helping everyone else to open the internet up to the possibility of honest posting.
None of us want to go to bed at night feeling that we have been doing unethical work all day, work that hurts our fellow humans in very serious ways. Jack Bogle doesn’t want that. Bill Bernstein doesn’t want that. Larry Swedroe doesn’t want that. J.D. Roth doesn’t want that. You don’t want that. Even the Goons deep in their hearts don’t want that.
So why have we tolerated this situation for so long?
It’s because it matters so much that we have had a hard time making the changes that we need to make. We believed in Buy-and-Hold for a time. So we were complicit in building it up. We feel bad about that. We don’t want those who have advocated Buy-and-Hold strategies to feel bad about themselves. We don’t want there to be prison sentences and lawsuits for financial damages and all this sort of thing. We want things to be pleasant and nice and happy.
And that instinct is of course a healthy one.
But we need to come to realize as a society that we ALL are capable of making mistakes and that it is by acknowledging mistakes that we move on to better things. Yes, we need to be loving and understanding to our Buy-and-Hold friends. Yes, we need to show respect and affection and gratitude for all the wonderful and powerful insights they have provided. All of that is 100 percent on the mark.
But we ALSO must move on to better things as we discover them through the use of academic research.
Jack Bogle had a dream. His dream was to provide a smart and simple and safe investing strategy to millions of middle-class people. He made a mistake in his first-draft effort to bring that dream to reality. So what? ALL pioneers make mistakes. We should be grateful that there are people who have the guts to be pioneers and stick their necks out on the line for us.
But we must also expect and demand that Jack correct his mistakes as he learns about them. That is where we messed up here as a society.
Jack caused the economic crisis. That wasn’t his intent. But that is the objective truth of what happened. Do we want him to be remembered as the guy who brought the U.S. economy to its knees?
Or do we want something better for him?
Or do we believe that he DESERVES something better for all the good work he has done for us over the course of many decades of fruitful efforts?
I say that Jack deserves our friendship. Which means that Jack deserves our unyielding DEMAND that he start posting honestly on these matters.
You won’t want to give me space to tell this story on your blog because it would sicken your readers to learn about it.
THAT”S WHY IT IS IMPORTANT.
All of us in this field need to be able to feel clean about ourselves again.
To achieve that clean feeling, we need to return to first principles. We are not in this field solely to make a buck. We also have aspirations of helping people live better lives. To realize those aspirations, we need to feel free to do honest work. The bottom line here is as simple and as complicated as that.
I was the person who built the Motley Fool’s Retire Early board to become the most successful board in the history of the Motley Fool site. I became friends with hundreds of people there, people from all walks of life. Those people believed that Greaney’s retirement study was at least roughly accurate. They planned retirements based on what was said in that study. The reason why they believed the study was accurate is that none of their friends ever said otherwise. Day after day after day he pumped the study and everyone acted as if it were a real thing.
Those people are in the process of suffering failed retirements today.
Because no one (myself included up until the morning of May 13, 2002) had the guts to call Greaney out on the absurdity of the methodology he used in that study.
Do those people’s lives matter?
They matter to me.
I believe that, had you spent the time getting to know them all that I spent getting to know them all, that their lives would matter to you as well.
Investing advice affects human lives. That’s the bottom line. If investing advice affects human lives, we all should be permitted to give honest investing advice. I could be wrong about that. But I’m not. Every single person reading these words knows on some level of consciousness that I am right about it.
The tragedy here is that we have let this turn into a “controversy.” There should be no controversy. We should all be 100 percent united in our desire to use the peer-reviewed academic research to learn more about how stock investing works in the real world. We all have been blessed to live at a time in history when there is more learning going on than there has been at any earlier time in history. And, instead of rejoicing at our good fortune, we have spent 11 years of our human energies arguing over whether honest posting on safe withdrawal rates should be permitted or not.
My sincere view is that this stuff matters very, very, very much, Roger. If I didn’t think that the financial futures of my readers mattered, I never would have spent one hour of my life working in this field in the first place.
It is my strongly held belief that the same is true of you. I believe that you are trying to persuade yourself that this stuff doesn’t matter but that deep in your heart, you believe as I do that it does. I believe that that is so of lots and lots and lots of people, including my good friend Jack Bogle. That’s why I know that I (and all of us!) win on the final page of this saga.
I hope we will have a chance to get together for coffee or a drink at FinCon13 in St. Louis. It would make me very happy if we could do that.
Please feel free to shoot back any thoughts if you believe I am off base here.
Take care, man.