Set forth below is the text of a comment that I recently posted to another blog entry at this site:
It is so common to see as these leading financial experts threatening people with prison and lawsuits.
It is not common at all to see leading financial experts refer to the need for prison sentences for you Goons, Anonymous. That’s why we are in an economic crisis.
I was a Buy-and-Holder on the morning of May 13, 2002. I gave it up on the evening of August 27, 2002. That’s the night that John Greaney threatened to kill my wife and two sons if I continued to “cross” him by posting honestly on the safe-withdrawal-rate matter. Motley Fool did nothing even though this was an obvious violation of their posting rules. 200 of my fellow community members (people who praised me to the skies in the days before I worked up the courage to post honestly on the SWR matter) endorsed Greaney’s threat.
That is emotion, Anonymous. That is a level of investor emotion so great that it is scary.
The peer-reviewed research that I co-authored with Wade Pfau shows us how to reduce the risk of stock investing by 70 percent. The biggest problem I have promoting that study is that the findings are unbelievable to most people. If I showed how we can now reduce the risk of stock investing by 10 percent, I would be the most popular person in the investing world today. But 70 percent? It just doesn’t seem possible.
Why is it that it is possible? It’s because investor emotion has been The Great Forbidden Subject for many years now. People see it all the time. They see the death threats and the demands for unjustified board bannings and the tens of thousands of acts of defamation and the threats to get academic researchers fired from their jobs. And they keep it zipped. They view it as unprofessional to talk about this stuff. They haven’t seen other investing experts talk about it and so they feel that it will hurt their credibility to talk about it themselves.
We have decided as a society to adopt a Social Taboo against talking about the subject that covers 80 percent of what we all need to know about to become effective investors. We need to know about and avoid investor emotion. We have a tool — P/E10 — that tells us what we need to know. We all need to make use of that tool. But to do so we all need to acknowledge that we messed up big time during those years when we were telling people (and ourselves) that looking at P/E10 was not 100 percent necessary.
We are ashamed that we messed up. We are ashamed that others messed up. We are ashamed that we failed to call others out when they messed up. We are ashamed that we let things get so out of control that there are people who will be going to prison over the cover-up. And on and on and on and on.
If I had a magic wand, I would take us back to the morning of May 13, 2002, and we would all play it over, behaving much differently this time. I appreciate that you Goons would like that. I can’t do it. I don’t have a magic wand. I can say some words as to why I think you felt pressures to play it the way you did play it and I can say some words about how I think you would do it differently if you had another chance. But that’s as far as I can go. If I say that you demanded correction of the Greaney study within 24 hours of learning of the errors in it, I am aiding the cover-up and then I am committing financial fraud myself. Which is a felony. Which means prison time for me too. Huh? No thanks!
We’re all in the same boat. We’re all in a big mess.
We have one huge thing going for us. We are the luckiest generation of investors who ever lived.
We take advantage of that card and we all end up in a far better place than would otherwise be possible.
But taking advantage of that card means working up the courage to talk about investor emotion. Which evidences itself in death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs. We all need to work up the courage to talk about all the stuff that we have never talked about before. Because it is the failure to talk about that stuff that caused our investing advice to go so wide of the mark and to cause so many trillions of dollars of losses as to bring on an economic crisis.
If the market were automatically efficient, none of this would matter. If the market were automatically efficient, investor emotion simply would not be an issue.
It turns out that Fama was close to being right but not precisely on the mark. The market LONGS to be efficient. But it cannot pull the trick off without being supplied with information helping it to access the level of investor emotion present at any given time. Once the market has that information, it can act to BRING the market to efficiency. We cannot do it without the information.
When we open the internet up to honest posting on every possible issue, we will all enjoy seeing an efficient market for the first time in history. So long as the Ban on Honest Posting remains in place, that dream remains unrealized.
My job is to steer us to the place where we work up the courage to make all that good stuff happen. Part of it is pointing out the prison sentences. Part of it is softening the blow by pointing out that the people who engaged in the cover-up were under a lot of unusual pressures.
That’s it. That’s where we stand today.
When I get the help I need, we all will begin living far richer lives than we ever imagined possible in the Buy-and-Hold days.
The hand of kindness is outstretched. I obviously don’t control when you Goons will extend your own hands in warm acceptance of the offer of help.
I continue to wish you all good things while you ponder the matter some more.