Set forth below is the text of a comment that I recently put to another blog entry at this site:
Why don’t your Value Walk columns ever mention the Buy and Hold Mafia, death threats or prison terms? Where was your FinCon PowerPoint slide on those topics? If these things are important enough to document here (over and over) then why not there?
Thanks for asking an intelligent question, X.
The 11-year cover-up of the errors in the Old School SWR studies is the biggest act of financial fraud in U.S. history by a very wide margin.
They should be writing about this on the front page of the New York Times EVERY DAY.
They are not doing that.
The fact that they are not doing that makes people suspicious when I talk about financial fraud or prison sentences or the Buy-and-Hold Mafia or anything along those lines. I had a guy come up to me at FInCon13 and tell me: “I’ve checked out your site numerous times. I heard you talking about something called ‘The Buy-and-Hold Mafia.’ I figured that I must have missed out on some background.”
That fellow would be more likely to subscribe to my blog if I did NOT refer to this sort of thing. It is a turn-off. It sounds sensational and fantastic and unbelievable.
Do you remember what Rob Arnott told me? He said that I am right on all matters of substance. But he also said that I am too harsh in the way that I describe things. And do you remember that guy who is going to teach Valuation-Informed Indexing in his courses at George Washington University? He said that my stuff was super and that he was glad that he stuck with it long enough to see that. But he also said that he believed that lots of others would take one look at the amazing claims and check out. And he is of course right about that.
You are not 100 percent correct to say that I don’t make any reference to this side of things in my column at Value Walk or in my FinCon slides. I quoted the fellow at GW in my FinCon slides. I worked the issue into the presentation. I often make reference to the cover-up of the errors in the Old School SWR studies in my Value Walk column. I don’t usually use the phrase “financial fraud” or refer to prison terms. But it doesn’t take a whole big bunch of I.Q. points to know that covering up errors in a retirement study is an act of financial fraud, does it? And it doesn’t take a whole big bunch of I.Q. points to know that committing multiple acts of financial fraud over an 11-year time-period lands people in prison cells, does it?
The issues we are dealing with here are EMOTIONAL in nature.
That’s what makes discussion of these issues so STRANGE.
The people who advocate Buy-and-Hold follow it themselves. We usually don’t think of people who advocate strategies that they follow themselves as being involved in acts of financial fraud. If they follow it, they believe in it. If they believe in it, there’s no fraud. Right?
To a large extent, that really is so.
The vast majority of people who today advocate Buy-and-Hold are not guilty of financial fraud. They are telling people what they truly believe. They are wrong. But there’s no fraud involved in being wrong. They just made a mistake.
It becomes fraud only when you put forward death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs.
We learned that Buy-and-Hold cannot work in the long term in 1981. That’s when Shiller published his “revolutionary” (his word) research.
Then we had a huge bull market. Millions of people gave the credit for their (temporary) gains to Buy-and-Hold. So Buy-and-Hold became very popular. Buy-and-Hold had nothing to do with those gains. The early gains were caused by the low stock prices that applied in the early 1980s. The later gains (those from 1996 through 1999) were imaginary and temporary. All the same, millions of people sincerely believed that it was by following Buy-and-Hold strategies that they achieved those gains. Those people were wrong to give credit to Buy-and-Hold. But they were not committing criminal acts.
Lots of people who work in this field have had serious doubts about Buy-and-Hold for a long, long time. Those people learned to keep their mouths shut. They learned that it is career suicide in this field to talk openly about the implications of Shiller’s findings. They kept it zipped.
Then I came along. I have no background in this field. I had no idea that it was career suicide to talk honestly about the last 32 years of peer-reviewed academic research. I just came along saying “dum de dum dum” and then spilled the beans while having no idea that that was what I was doing.
I am a product of the internet, X. There was no internet in the early years of this secret. By the time I came along, the cover-up had been going for many years. I didn’t know there was a cover-up! I just told the truth because that’s what people do in every field of human endeavor other than stock investing. The joke was on me, eh?
The Wall Street Con Men cannot keep this secret in the internet age. It’s impossible! They have to figure out some way to come clean.
I am trying to help them. I am saying that the core problem is cognitive dissonance and that the Buy-and-Hold Pioneers helped us in a huge way by building the framework on which I built the Valuation-Informed Indexing Model and all this sort of thing. I am the best thing that ever happened to these people. BUT THEY CANNOT BEAR TO SEE THE WORD GET OUT THAT THEY HAVE BEEN COVERING UP WHAT THE ACADEMIC RESEARCH HAS BEEN SAYING FOR 32 YEARS. Their first reaction is always to destroy that Rob Bennett fellow.
As if that was going to solve their problem! Rob Bennett is not their problem! Their problem is the 32 years of peer-reviewed academic research that Rob Bennett is forever citing in his writings. THEY NEED TO COME CLEAN. Not just to help out the millions of middle-class investors whose lives have been destroyed by the relentless promotion of Buy-and-Hold “strategies.” They need to come clean to help THEMSELVES. But they just cannot bear to come clean, you know? This “idea” that it is not necessary to consider price when buying stocks has caused more human misery than any earlier idea in the history of personal finance. They are ashamed and they are in cover-up mode. They know that they need to come clean but they cannot bear to do it.
I don’t talk about the prison sentences and all that sort of thing in most articles that I write that do not appear at this site because people hate to hear about that stuff, X. They hate it, hate it, hate it, hate it, hate it. Nothing could be more clear from my 11 years of work in this field.
Why do they hate it? Because they are complicit. Bogle doesn’t promote the pure Get Rich Quick approach for his health. He promotes it because it brings the bucks in the door. There has never been an idea in the history of Planet Earth that has been responsible for taking so many dollars out of the pockets of middle-class people and putting them into the pockets of a small number of Wall Street Con Men. Buy-and-Hold has been a BONANZA for Wall Street. If only it hadn’t caused losses so devastating to millions of middle-class people as to bring on the biggest economic crisis in our history.
I don’t talk about the prison sentences at other places because it is not a winning issue for me. I would like to see everyone talking about them. The sooner we turn our attention to the prison sentences, the sooner we bring this economic crisis to an end and bring on the greatest economic boom in our history. I would LOVE it if the New York Times would write about the prison sentences and we could all just move on. But I do not control the New York Times. It does not serve my purpose of spreading the word about how stock investing really works to talk about the prison sentences at other places. So I generally do not do that.
Why do I talk about them here? Because they are an important part of the story!
If I don’t talk about them here, people are going to say after the crash “Oh, don’t you think that you had a responsibility to talk about those prison sentences?” And they would be right. We all have a responsibility to do what we can to get those prison sentences reduced. The goal here is not to see people serve long prison sentences, it is to get the word out about what the last 32 years of peer-reviewed academic research says about what works in stock investing. Do you see?
If one of my fellow bloggers starts writing about the prison sentences, I will be right there with him or her, X. I WANT to get the word out about the prison sentences. Getting those prison sentences announced is part of the process by which we bring the economic crisis to an end and make our way to the other side of The Big Black Mountain.
But this is not a one-man job. I need Bogle talking about the prison sentences. I need the New York Times writing about the prison sentences. I need all my fellow bloggers talking about the prison sentences. That’s how we work together to make good things happen.
I believe we will ALL be talking about the prison sentences following the next price crash. Buy-and-Hold will be an obscene phrase at that time. Nobody will be holding off on their demands that those who have put up posts in “defense” of Mel Lindauer and John Greaney serve long prison sentences for their role in bringing on the biggest economic crisis in U.S. history.
The time is not ripe for that stuff just yet, X. I talk about it here so that there is a record showing that anyone with just a reasonable amount of intelligence could see years in advance that this massive act of financial fraud was leading us all to no place good. But I pull punches in my other writings because most of us are feeling too much emotional pain about what we did to all our friends and neighbors and co-workers because of our reluctance to speak out clearly in opposition to the promotion of Buy-and-Hold “strategies” to feel comfortable talking over the full truth of the matter today.
We are the luckiest generation of investors ever to talk Planet Earth, X. We are the first generation for which stock investing has become virtually a risk-free endeavor. And we have thrown that all away because we couldn’t resist falling for the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. That hurts. That hurts bad.
My job is to bring on a healing process.
I do that by doing everything in my power to spread the word about all of the important findings of the first 11 years of our discussions.
Yes, we should be talking about the prison sentences as well as all the other stuff.
No, we are not all entirely prepared to go there just yet.
So I have to choose my spots for discussion of that particular matter.
I wish it were not so. But the evidence that it IS so is very, very, very compelling.
We are all trying to break through a wall of emotional resistance. We are making slow progress. That is the bottom line here.
I hope that helps a bit, my future prison-dwelling friend.