Set forth below is the text of a comment that I posted recently to another blog entry at this site:
Who are these goons that are standing in your way? How are they standing in your way?
One of you Goons put up a reference to “The Law of Thermodynamics” or some such thing the other day. The idea was that this law was a core principle of physics, something that people working in the physics field don’t give up lightly. It is a foundation stone of the science. There are hundreds of insights that have been built on it. So you don’t pull out the foundation stone unless you absolutely must.
The point was that I am trying to pull out the foundation stone of investing analysis when I say not only that one form of timing (long-term timing) always works but also that it is 100 percent required for investors seeking to have any hope whatsoever of long-term success to engage in this form of timing. The comment was right on. I AM trying to pull out the foundation stone. I am doing it for 100 percent positive reasons. But it IS a scary thing for us as a society to pull out the foundation stone for our model for understanding how stock investing works and to essentially agree that we knew next to nothing before and that we now need to start over again with first steps.
My critics see this as a bad thing. They see that we are going to need to rewrite all the books and rejigger all the calculators and they say “this guy is causing trouble.” I focus on the upside. We will not be rewriting all the books and rejiggering all the calculators for no good reason. We are doing it to get things right. The Buy-and-Hold Pioneers told us that we need to use a numbers-based approach to avoid the subjectivity that held back progress in this field for so many years. They were right. But the Buy-and-Hold Pioneers did not have Shiller’s research available to them when they developed their model (Fama discovered that short-term timing never works in 1965 and Shiller did not discover that long-term timing is always required until 1981). So they made a mistake on a foundational issue and thereby turned their model into the greatest wealth-destruction engine ever concocted by the human mind. I see it as a wonderful thing to correct the error because it means that it will be the first time in the history of the planet that we will have a model for understanding how stock investing works that will work in the real world and we will all live far richer lives (in every sense of the word) than we ever before imagined possible.
What’s holding us back? Why wouldn’t we all rush forward with great enthusiasm to embrace a learning experience that lets us retire five to ten years sooner while reducing the risk of stock investing by 70 percent?
You don’t achieve advances like that without making big changes. Valuation-Informed Indexing is not a small advance over Buy-and-Hold, it is a HUGE advance.
To achieve a huge advance, you must discover something entirely new, something that had been overlooked by millions of people for hundreds of years. Something gigantic.
Is there something gigantic to be discovered about how stock investing works at this late date?
It is how to overcome emotionalism.
Emotionalism is what destroys portfolios. Always. The U.S. economy is sufficiently productive that it is virtually impossible to imagine a way to invest in stocks that will not produce good long-term results. The only thing we have ever come up with is emotionalism. To fail as a stock investor you must act irrationally. Not once. But over and over and over again. In an objective sense, it’s a difficult trick to pull off. But we humans have managed to find a way!
The Buy-and-Hold Pioneers were anti-emotionalim. Their aim was to help investors make rational choices. But they didn’t know everything. That’s the sad fate of us poor humans. We are always working with imperfect knowledge, we are always partly in the dark no matter how educated we become. The Buy-and-Hold Pioneers failed to distinguish short-term timing (which never works) and long-term timing (which is always required). So they got everything wrong. They put forward a numbers-based strategy that manages to get every number wildly wrong! Yikes!
Why do we investors do these things to ourselves? Why do we make irrational choices? Why do we delay our retirements? Why do we bring on economic crises?
Because we are freakin’ Goons!
That’s the story, Anonymous.
Each and every one of us has a Goon voice within us. Bogle has it. Shiller has it. I have it. Every last one of us. And it is by reining in The Inner Goon that we become successful investors.
People in this field don’t like to talk about this sort of thing. They want to leave the impression that they are “experts.” So they like to talk about the hard stuff — numbers, graphics, tables. The problem with focusing on that stuff is that you can talk about that stuff for ten million years and never do a thing to address the Goon problem. Which means you have not managed to offer investing advice that stands any chance whatsoever of working in the real world.
I play it the other way. My FOCUS is the Goon stuff. I focus on that because that is the critical factor that no one else has explored in depth. By focusing on the Goon stuff I am making a unique contribution. That’s what I want to do. It is by making a unique contribution that I become rich and famous! And I want that for myself!
We all have an Inner Goon.
But most of us don’t let it show to the extent that you do, Anonymous.
Bogle has an Inner Goon. He doesn’t advance death threats. He shows his Goon in another way.Bogle fails to speak up in opposition when Mel Linduaer and John Greaney make death threats.That’s another way of doing the same thing. An argument can be made that the way Bogle does it is worse. It is less honest. At least with Linduaer and Greaney, you see just what you get. With Bogle, the Goon stuff is hidden. He gets the benefits of goonishness (people are afraid to point out the weaknesses in the investing strategies he promotes). But people also offer him the sort of respect that we generally extend only to people who act in responsible ways. He gives the appearance of being professional while protecting himself from intellectual challenges by associating with the most vile gang of abusive posters ever seen in the history of the internet.
Goonishness is hate and irrationality and anger and envy and ignorance and violence and intimidation and stubbornness. Our goonishness is our dark side. It is by coming to terms with our dark side that we become more effective investors. It is by reining in goonishness that we bring the Buy-and-Hold Crisis to an end and enter the greatest era of economic growth that we have ever seen.
I call you guys (and witches!) Goons because you are so obvious about it. But I acknowledge that the goonishness is a more widespread phenomenon. It is not just people who put up posts in “defense” of Mel Lindauer and John Greaney who suffer from goonishness. It is also the people who fail to speak up about the goonishness of those who post in “defense” of Mel Lindauer and John Greaney. Which means that it is pretty much all of us (including me prior to the morning of May 13, 2002).
When we work up the courage to face our goonishness, we will achieve the biggest advances in our understanding of how stock investing works that we have ever achieved. We will all go on to live far richer lives than we ever before imagined possible.
If we fail to work up the courage, we will all go down together. That’s what the numbers say.
I have a patriotic duty to try to bring down The Buy-and-Hold Mafia. That’s what every member of The Buy-and-Hold Mafia deep in his or her heart wants me to do. All of the Goons have a human side. All of the Goons secretly want to be called out. So that’s my job.
It is your job too. It’s Bogle’s job. It is Shiller’s job.
We all need to protect our nation’s economic and political systems from further Goon attacks if we hope to be able to continue to enjoy the blessings bestowed upon us.
So I will continue to post honestly re safe withdrawal rates and all other critically important investment-related topics.
I naturally wish you all the best that this life has to offer a person, Anonymous.