Set forth below is the text of a comment that I recently put to another blog entry at this site:
For each to do the same thing, yes, it would require a mass conspiracy. What are the odds that each would act in similiar fashion on their own accord. The odds of that happening are astronomical.
There obviously is no mass conspiracy. That is obviously a 100 percent silly idea.
But you are wrong when you say that the odds are against large numbers of people acting in a similar manner. When there are huge incentives for people to act in a certain manner, it should not be even a tiny bit surprising to find that most elect to take advantage of those incentives.
To understand what is going on, you must understand how stock prices are set. There is no governing body that has to approve a price increase. It is 100 percent up to investors to determine whether prices go up.
How many of the humans benefit from an increase in stock prices? We ALL seem to benefit! Every last one of us. The Stock-Selling Industry is happy with a price increase because they sell more stocks. Investors are happy because they appear to be closer to financing their retirements. The newspapers are happy because more people want to read the business pages. More books are sold. Politicians are happy because people are more satisfied with their lives and more likely to vote for incumbents. Clothing stores are happy because people have more money to spend on clothes. And on and on and on.
Is that a conspiracy?
Not in the usual way in which that word is used. It is a case where everyone has an incentive to do the same thing — push stock prices up. It’s a case of all incentives pointing in the same direction.
The answer is to provide equally strong incentives pushing people to act to keep from stock prices getting out of hand. The way to do that is to permit honest posting on the peer-reviewed academic research of the past 32 years. People can retire many years sooner if they follow a research-based strategy. But they have to know about it first! So we must open the internet to honest posting.
That’s the story, Questions.
There is no conspiracy. There is an unhealthy lack of balance to the incentives being provided to investors and investing experts.
Cigarette companies once advertised the health benefits of smoking. Why do you think they did that? It helped sell cigarettes. And there was no downside. To change that situation, we imposed a downside. We adopted laws and regulations that made clear to the cigarette companies that their top executives would go to prison if their companies continued to make false claims about the health benefits of smoking.
The Stock-Selling Industry is today where the tobacco industry was in the days when cigarettes were promoted as a boon to good health. We need to send people to prison when they make false safe withdrawal rate claims and then respond to those pointing out the falsity of the claims by threatening to kill their family members. When these people go to prison, all the others making false claims will notice and will stop making false claims themselves.
That’s how it works.
All the incentives today are encouraging people to talk nonsense about stock investing. The result is that we are in the worst economic crisis in our history. To change that, we need to provide disincentives to promote Buy-and-Hold strategies and incentives to promote Valuation-Informed Indexing strategies.
My warmest wishes to you.