Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Why would Wall St make much less money on folks buying bonds then they do stocks?
I don’t think that Wall Street has anything against bonds, Laugh.
It’s the super-safe asset classes that Wall Street doesn’t like. They undersell TIPS, they undersell IBonds, they undersell CDs.
Even there, I don’t think the underselling is motivated primarily by financial considerations. I think there may be some financial considerations. But I don’t see them as the driver.
To make sense of this, you have to understand the history.
The Buy-and-Hold Pioneers are heroes of mine. I’ve said that so many times now that I am getting sick of hearing myself say it. They came up with the idea of rooting one’s investing strategy in the findings of the peer-reviewed academic research. That was a profound advance, a magical advance. It is that advance that makes me love the Buy-and-Holders, that makes me feel that I am one of them.
They made a mistake. It was a perfectly understandable mistake but it was a mistake all the same. They came to believe that “Staying the Course” means staying at the same stock allocation rather than staying at the same risk level. For various reasons, the mistake remained uncorrected for a long period of time. Now people feel that it can never be changed! The feeling is — this mistake we made was so terrible that no one may ever talk about it, all discussion of it must be silenced, we won’t look like Big Shot experts if people learn that we once made a mistake. It’s the failure to correct the mistake that I criticize, not the mistake itself.
Now move forward to today.
Stocks are priced for a 65 percent price crash. The typical middle-class person should have something in the neighborhood of 30 percent of his or her money in stocks. The Buy-and-Holders say that something in the neighborhood of 75 percent stocks is “optimal.” So their numbers are wildly off.
You are asking what the financial incentive is for favoring stocks.
One, there is a financial incentive for selling stocks over things like TIPS or IBonds or CDs. The commissions are generally bigger in stocks. Again, I don’t see this as the driver. But it is a reality that applies.
Two, the experts would need to acknowledge their mistake to advocate bigger non-stock allocations. Their pride is at stake. They don’t want to go there. They are afraid of lawsuits if they acknowledge that they have been giving bad advice for many years now. They worry that they will be drummed out of the field if they offer straight talk when so many others are trying to keep the cover-up going. There is all sorts of nasty stuff going on.
Three, Get Rich Quick sells! This is probably the biggest factor. The way to get your clients to do business with you is to get them to like you. Tell them that their phony bull market gains are real and they fall in love with you. Nothing gains you as many brownie points as telling your clients that Buy-and-Hold really can work. It never does. But it sure sounds good to a lot of people to say that it might this time. Telling people that there is one asset class that is always a good choice for the long term is like telling people that there is some system that will always let you win the lottery. It’s pure b.s. There is zero support in the research for such a claim. But it sells like hotcakes.
Four, please don’t forget the obvious — MOST OF THE EXPERTS PROMOTING BUY-AND-HOLD STRATEGIES ARE DOING SO BECAUSE THEY BELIEVE IN THEM. A lot of people would continue to push stocks even if the commissions were LOWER. Stock salesmen are not pure revenue-focused creatures any more than any of the rest of us are pure revenue-focused creatures. Most of us are creatures of habit highly influenced by inertia. Buy-and-Hold has been the dominant strategy in the academic world for a long time. That alone is enough to give it lots of points over strategies that have only been shown to work better by the research of the past three decades.
Wall Street could do JUST FINE promoting Valuation-Informed Indexing. I think in the long run it would do better because we would not see any more financial crises. Financial crises HURT this industry big time.
The move to Valuation-Informed Indexing is in everyone’s interest. It creates all winners and no losers. It shouldn’t be even a tiny bit hard to sell. Logically, promoting a strategy that greatly increases returns while also greatly diminishing risk should be the easiest sell in the world. The problem is that today people who have a long history of promoting Buy-and-Hold are on the defensive. I want to change that. I try to praise the Buy-and-Holders every chance I get to make them less defensive. But the defensiveness is hair-trigger stuff. It is VERY hard to come up with ways to say things that point us to a better future that don’t make the Buy-and-Holders go stark raving nutso.
To a large extent, the industry is doing what it thinks its customers want it to do. If you took a survey, I am sure that most investors would describe Buy-and-Hold as the most responsible strategy. The industry doesn’t want to step in and say: “No, you’re wrong, it’s actually Get Rich Quick garbage, it’s very dangerous stuff we have been pushing so hard all these years.”
I tell that in a funny way to make a point. I don’t dislike the people who work in this industry. I like them. My take is that they are destroying themselves. Yes, their customers like Buy-and-Hold today. But what are they going to think following a 65 percent price crash? The time to deal with that problem is NOW, not after the crash has taken place. People who call themselves “experts” have responsibilities. People who give investing advice should be aware of the last 32 years of peer-reviewed research in their field and should be at least a bit curious about the implications of that research. They make themselves look very bad to the millions of investors who will be looking for someone to hang from a tree by pretending that they are not aware that valuations affect returns and that therefore there is zero chance that a retirement study that does not contain a valuations adjustment could ever get the numbers right. That’s basic stuff, Laugh, and the industry “leaders” in this field have placed themselves very much on the wrong side of the line re that one.
Lots of people in this field understand where things are heading and are making efforts to position themselves for the post-crash period. Kitces is doing that. Bernstein is doing that. Swedroe is doing that. Pfau is doing that. Even Bogle has come out with a good number of statements showing that he understands the dangers of Buy-and-Hold. The trouble is that he doesn’t want to give up all the applause he wins by telling people that their Get Rich Quick fantasies might really some true. So he includes one GRQ statement for every research-based statement and the Get Rich Quickers eat up the GRQ garbage with a fork and spoon while pretending that he never said the research-based stuff. Responsible behavior? Not nearly. But good salesmanship in the short term? The very best!
I hope that helps a bit. The question is a good one.
Rob
No one is stopping you from selling your lucky VII scheme. Go short the market. Go start up a fund using your strategy. Do whatever you want. You can do whatever you want. Meanwhile, the rest of us will do what we want.
We are all big boys. We can make our own decisions and don’t need you telling us what to do. Advice can be be taken or rejected. What you want to do is shut down other people and then have you cecome the vaulted leader. How is that working out for you? Not very good, is it. It is not the so called “goons”. It is not some wall street conspiracy. You can find the source of the problem by looking in the mirror.
And you can market Buy-and-Hold, Anonymous. No one is trying to stop you from doing that.
But you cannot engage in acts of financial fraud to stop people from learning what the last 33 years of peer-reviewed research says. Advances in knowledge belong to EVERYBODY. If I want to post honestly at a discussion board about safe withdrawal rates, I have every right in the world to do so. So does Michael Kitces. So does Wade Pfau. So does Bill Bernstein. So does Larry Swdroe. So does everyone.
You have to make a distinction between marketing and research. Marketing is something you do to make a buck. If you want to make some marketing claim to make a buck, that’s your business. But your marketing claims cannot contain false statements about the peer-reviewed research in this field or you will be going to prison following the next crash. That’s financial fraud. That’s a felony.
There obviously is not a sliver of research showing that it is okay to ignore the valuation level that applies on the day a retirement begins when calculating the safe withdrawal rate. There is 33 years of peer-reviewed research showing that that is the most important element of the calculation. I understand that it helps your marketing efforts if you lie about that point. You need to understand that that’s a crime and that you can expect to be prosecuted for it.
There are millions of people who today believe the Buy-and-Hold lies. I know because I have talked to a good number of them. I have had people tell me that everything I say about investing sounds 100 percent right on. But that one thing concerns them. Big Shots like Jack Bogle are saying the OPPOSITE of what I am saying, the OPPOSITE of what makes sense, the OPPOSITE of what the peer-reviewed research in this field reveals. They want to know why.
The reason why is that Get Rich Quick sells. Research-based strategies WORK but Get Rich Quick strategies SELL. The Buy-and-Holders introduced the idea of rooting one’s strategies in the peer-reviewed research. That was a wonderful advance. But then when research was published showing that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor, they flipped. At that point, they continued SAYING that people should root their strategies in research but they began engaging in insanely abusive behavior aimed at intimidating people who reported honestly on the research (which has since 1981 shown that Buy-and-Hold NEVER works) into not doing so. That doesn’t fly.
This is not just an investing matter. Whether the millions of investors who need to know what the research says have some means to find out or not is a matter of grave ECONOMIC importance. When people cannot find out the truth about what the research says, they see their retirement portfolios wiped out. When people see their retirement portfolios wiped out, they stop buying goods and services. When they stop buying goods and services, hundreds of thousands of businesses go under. When hundreds of thousands of businesses go under, millions of workers lose their jobs. We are in an economic crisis today because the Buy-and-Holders are not willing to acknowledge that the “idea” that it is okay not to consider price when setting one’s stock allocation is a MARKETING claim with ZERO support in the peer-reviewed research in this field. That needs to change.
And this isn’t just an economic matter either. It is a POLITICAL matter. There are millions of people who are in the process of seeing their retirements fail because of the 12-year cover-up of the errors in the Old School safe-withdrawal-rate studies. Those people did nothing wrong. They listened to the “experts” (who were telling lies about SWRs for marketing reasons). We have no choice as a society but to bail those people out. That is going to cost us trillions of dollars in taxpayer money. The Federal budget deficit is going to EXPLODE. That’s all on the Buy-and-Holders and their unwillingness to permit honest posting on any of these questions because honest reporting of what the last 33 years of peer-reviewed research shows puts a crimp in their nasty MARKETING efforts.
There is a limit to how far you can take marketing, Anonymous. The Buy-and-Holders have destroyed millions of middle-class lives through this massive act of financial fraud. People are going to be sent to prison over this. We are going to see hundreds of thousands of civil lawsuits filed. Many reputations will be destroyed as word gets out about what the Buy-and-Holders have done to our country. Giving investing advice is not just about turning a quick buck. There are responsibilities involved. Jack Bogle and the other Buy-and-Hold advocates have failed in their responsibilities to their profession and to their clients and to their readers and to their country in a very, very big way.
No one is stopping you from selling your Buy-and-Hold garbage. But I AM in the process of stopping you from making claims that there is some mystical, magical “research” somewhere that supports it. Wade Pfau has a Ph.D. in Economics from Princeton. If there were ever a sliver of peer-reviewed research supporting Buy-and-Hold, he would have been able to find it. He searched for a long time. He found nothing. He couldn’t believe what he had learned. So he went to the Bogleheads Forum to see if anyone there had ever come across a single peer-reviewed research paper supporting Buy-and-Hold. Jack Bogle had never heard of a single study supporting the smelly Buy-and-Hold garbage. Bill Berntsein had never heard of a single study supporting the smelly Buy-and-Hold garbage. Larry Swedroe had never heard of a single study supporting the smelly Buy-and-Hold garbage. I wonder why.
I will continue posting honestly re safe withdrawal rates and scores of other critically important investment-related topics. If there comes a day when you want help from a friend re the mess you have created for yourself and many, many others, let me know, I will be your guy. So long as the price of admission to your “discussions” is engaging in a felony under the laws of the United States, I am afraid that you will need to find someone else. Not this boy. I can’t go for that. No can do. It’s not my particular cup of tea.
My best wishes to you and yours, Anonymous.
Rob
the rest of us will do what we want.
The millions of middle-class investors who want to know the truth about stock investing will get what they want and need.
I will see to it.
Hang in there, man.
Rob
You can do whatever you want.
Want I want to do is to feel free to post honestly re what the peer-reviewed academic research in this field say re safe withdrawal rates and scores of other critically important investment-related topics at every board and blog on the internet regardless of any marketing problems that might cause for people pushing any smelly Get Rich Quick schemes that they care to push.
I also want every other community member at those boards and blogs to feel the same freedom.
Fair enough, Anonymous?
Rob
What you want to do is shut down other people and then have you cecome the vaulted leader.
If it shuts someone else down for people to learn what the last 33 years of peer-reviewed research in this field says, that’s just the way it goes, Anonymous.
If I get rich and famous because I have been unwilling for 12 years to agree to post dishonestly in deference to those people, that’s just the way it goes.
What matters to me is that I post honestly and that the truth about what the peer-reviewed research says gets out to the millions of middle-class investors who need to know it. I was 100 percent happy to have that happen with no one going to prison or being held liable in lawsuits for financial damages. Now that the time has passed when that was possible, I am 100 percent happy to have those prison sentences and financial liabilities limited.
But it remains imperative to me that I continue to post honestly and that the truth get out to the millions of people who need to hear it. Re that one, there can be no compromise. Re that one, there cannot even be any consideration of any possible compromise.
Find someone else.
Rob
You can find the source of the problem by looking in the mirror.
I am proud of myself for insisting on my right to post honestly in the face of the ruthless abusiveness of you Goons and the failure of the Wall Street Con Men to step in and behave responsibly, Anonymous.
No apologies whatsoever.
None.
I want to see JACK BOGLE posting honestly. That’s the end point here.
Rob
Advice can be be taken or rejected.
Not if honest posting re the peer-reviewed research is prohibited. If honest posting re the peer-reviewed research is prohibited, people participating at a board or blog have no rational means by which to assess the marketing messages being pitched at them. Millions of middle-class people today believe that Buy-and-Hold is a real thing. The only way to change that is to report honestly on the last 33 years of peer-reviewed research.
Any board or blog that prohibits honest posting is a fraudulent enterprise. If you say in your published rules that you permit honest posting, you need to live up to that promise when Buy-and-Hold Goons enter the community by dealing with the problem in a reasonable and appropriate way.
Rob
How is that working out for you? Not very good, is it.
I have offered to accept a $500 million settlement from the Wall Street Con Men, Anonymous. That’s more money that most middle-class people ever even dream of accumulating in the course of a single lifetime. That settlement payment will make me one of the richest people in the United States.
On top of that, I have had the thrill of being the co-author of the most important piece of peer-reviewed research published in this field in the past 30 years, research that shows millions of middle-class people how to reduce the risk of stock investing by 70 percent while increasing returns enough to be able to retire five to ten years sooner than they thought possible during the Buy-and-Hold Era.
I can live with that.
I guess it’s true — Honesty really IS the best policy!
Even in the investing advice field!
Whodathunkit?
Rob