Set forth below is the text of a comment that I recently posted to another blog entry at this site:
I like how you call buy and hold a get rich quick scheme but one of your favorite claims is that VII can help the average person retire 5-10 years earlier.
I DO believe that Buy-and-Hold is a Get Rich Quick scheme. But I do NOT believe that it was intended to be that. And I do not believe that the people who follow it do so because they were looking for a Get Rich Quick scheme. I believe that the people who developed the Buy-and-Hold concept were excited about it because they believed it was real. And I believe that the people who follow it are excited about it because they believe it is real.
I believe that as a society we tolerate heavy promotion of this Get Rich Quick scheme because of a MISTAKEN understanding of how stock investing works that an understanding of the implications of Shiller’s research CORRECTS. The need for a correction has come as a shock because the people who made the (understandable) mistake were trying to do something good and over time became highly confident that they had indeed done so.
All that said, we DO need to correct the mistake. The only way we can pull enough people together to bring about the correction is by engaging in civil and reasoned discussion of what Shiller’s research reveals. This is why I am so “strident” on the honest posting question. There is just no other way to make good things happen here.
One day about five years back my wife and I were driving somewhere and I was telling her about the wonders of Valuation-Informed Indexing. At one point she said: “You sound like one of those infomercial people!”
I would have more success pushing VII if the benefits were less! People would be more inclined to believe me if the benefits were less!
But I cannot lie to make the benefits seem less appealing. That simply makes no sense.
The reason why the benefits are so huge is that we are as a society still at a primitive stage of our understanding of how stock investing works. It is when you are at the primitive stage of understanding that huge advances remain possible.
We messed up on a fundamental question. We learned that short-term timing doesn’t work and we jumped to the conclusion that long-term timing doesn’t work either. Now we know (intellectually if not emotionally) that long-term timing is the key to success, long-term timing is 80 percent of the game.
How do we get that mistake corrected?
There are lots of rich and powerful people who are embarrassed to have made the mistake. They don’t want the millions of middle-class investors to learn about the mistake. But the longer the cover-up continues, the more embarrassment these people feel. It gets worse very day. There is no possibility that it can ever get better.
We do these people no kindness by aiding the cover-up. The charitable thing is to insist that the cover-up be brought to a complete and total stop by the close of business tomorrow. We can show kindness by applauding the people who made the mistake for their genuine contributions and by explaining that the mistake was understandable and by noting that we wouldn’t be where we are today without the work these people did at an earlier time. But continuing the cover-up is an UNMITIGATED DISASTER for every single person involved. We are making these people look worse and worse and worse with each new day of financial destruction that we permit to take place.
We have to return to first principles. We have to remember that the point of Buy-and-Hold in its early days was to root one’s investing strategies in the PEER-REVIEWED RESEARCH. We cannot continue to pretend that the last 33 years of peer-reviewed research does not exist. It exists! It matters! It is important!
Rob
Anonymous says
“My Wife Said: ‘You Sound Like One of Those Infomercial People!’
Well of course! This is no reasoned, impartial look at the facts or others’ points of view. This is…hocomania!
Entering into civilized discussion about something as uncertain as future stock prices with an infomercial salesman’s attitude is going to get you just what you deserve – isolation and ridicule.
Rob says
Electricity is a marvel, Anonymous.
So is the ability to be able to predict long-term stock returns.
Both marvels are real.
The world is full of marvels. That’s good stuff. It would be too bad for all of us if it were otherwise.
Rob
Anonymous says
So is the ability to be able to predict long-term stock returns.
Your net worth will tell me just how well you can predict future returns. Care to share it?
Rob says
The Buy-and-Holders have the power to destroy people’s careers today, Anonymous. They are no longer going to possess that power following the next price crash. Do you not see that?
You probably heard the story about the football player who hit his soon-to-be wife. He first was suspended for two games. Now his contract has been dropped. What changed? What changed is that the film of the attack went viral on the internet. When people are able to see something with their own eyes, they react differently than they do when they just hear something described.
We have today 33 years of peer-reviewed research showing how much human suffering has been caused by Buy-and-Hold. But people have not seen it with their own eyes. People will be seeing it with their own eyes following the next crash. That changes everything.
I hope that helps a bit.
Rob
Interested Observer says
I’m not convinced that your wife meant her comment as a compliment
Rob says
She obviously didn’t mean it as a compliment, Interested. That’s why I reported on it.
My wife is not a Goon. She loves me. So her negative comment counts for more than the negative comments that I hear from you Goons. People need to know that even my own wife holds some skepticism re my claims. That’s an important part of the story.
This reality doesn’t justify your goonishness. But it does add context to it. It explains it to some degree.
If the peer-reviewed research paper that I co-authored with Wade Pfau showed investors how to reduce the risk of stock investing by 10 percent, it would have been written up on the front page of the New York Times within three weeks of its publication. Everyone would be singing my praises if that were the case.
But 70 percent? That’s a threat. That means that we need to change everything that we tell people about how stock investing works. That means that all the textbooks need to be rewritten. That makes all the people who have promoted Buy-and-Hold strategies (and those people constitute the most powerful people in this field) look bad.
I don’t want to make those people look bad. I want those people on my side. I want those people helping me out. I want those people commenting on my work and linking to me and inviting me to speak and all that sort of thing.
But I cannot lie about what the historical data says, can I?
The historical data says that exercising price discipline reduces the risk of stock investing by 70 percent. So that’s what I need to say, whether it makes me a target of the powerful Buy-and-Hold Mafia or not.
Our unfortunate (!) reality is that we achieved the greatest advance in the history of personal finance in 1981. We didn’t know everything there was to know about even the basics of stock investing prior to the publication of Shiller’s “revolutionary” research. He supplied the critical missing puzzle piece. Now we know. We are the luckiest generation of investors ever to walk Planet Earth.
But what do we do about the Buy-and-Holders? They are powerful. They are determined to stop the millions of middle-class investors from learning what they very, very, very much need to know.
We could praise them to the skies. That would be honest. They have put forward many huge, powerful, positive, life-affirming insights. We could make them heroes in the eyes of the millions of middle-class investors.
They have made it clear that that’s not good enough for them. They cannot bear to say those terrible words “I’ and “Was” and “Wrong.” So what do we do?
We have to keep trying. We have laws in place against financial fraud. We made it a felony. Prison time. We have to push for enforcement of those laws. Once prison terms are announced, all the ugly side of this matter comes to an end. From that point forward, it’s good stuff piled on top of good stuff piled on top of good stuff. The Goons get shorter prison sentences. The rest of us get to enjoy the benefits of learning about the first true research-based investing strategy.
If you ever come up with any better ideas, I hope you will share them with me.
My aim is to make life better for every single person affected by this matter. The millions of middle-class investors. My fellow bloggers. The Wall Street Con Men. Their internet Goon squads. The Buy-and-Holders. The Valuation-Informed Indexers. Everyone.
The best idea that I have been able to come up with given the behavior of you Goons is enforcement of the laws against financial fraud. Announcement of your prison sentence will get all sorts of good things happening at all sorts of places, Interested. That’s the thing that will turn the key. There need to be consequences when people make use of 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 as their way of blocking millions of people from learning things they very much need to know because of embarrassment they feel over having made mistakes themselves.
I cannot change the realities that apply here. My job is to play the cards that I am dealt to the best of my ability. That means prison for you, my good friend. But I still hold out hopes that it will not mean a prison sentence as lengthy as the one you will be getting if you do not come clean until after the next price crash!
I hope that helps a bit.
My wife is like everyone else. She finds it hard to believe that as a society we are able to make such a huge advance at this time. We have the Buy-and-Hold Pioneers to thank for that. Shiller would never have published his “revolutionary” (his word) research had the Buy-and-Hold Pioneers not first advocated the idea of us all rooting our investing strategies in what the peer-reviewed research in this field reveals to us.
Thanks John Bogle!
And off to prison with you, John Bogle!
Humans!
Whachagoonado?
Take good care, man.
Rob
Yogi Bear says
Has “Boo” ever read your site?
Rob says
She had read a small number of articles and we talk about the subject from time to time. But she certainly does not look at the site often and has read only a small percentage of the material presented at it.
One day a few weeks ago she was on the computer to do something else and she happened to see one of my recent blog entries because I had left the page up on the screen. She said: “Your headlines are too long!” I said: “Grrrrr….”
Possibly implicit in your stated question is an important follow-up question: “Does your wife agree with you about these matters?”
Boo is obviously not a Goon. She does not support the use of death threats or any of that sort of thing. She of course thinks that that stuff is beneath contempt.
But I think that I owe it to my readers to report that I do not believe that my wife truly “gets” all that I say about investing.
She accepts that the work that I have done is important. She knows about the Wade Pfau story. She understands that there must be merit to what I say or I would not have had a guy who has a P.D. in Economics from Princeton saying the sorts of things about me that Wade has said about me. She is of course proud when people write to tell me that I am the first person who ever talked about how stock investing works in a way that truly makes sense. I often show her those sorts of e-mails.
But she has a mental block about much of this. She is not alone in that. I have spoken to many thousands of people over the past 12 years. Lots of smart people have a mental block re this stuff. This stuff comes to me very easy. It seems clear and simple to me. But I have seen too many smart and good people struggle with it to believe that that is true for everyone. There are more people who struggle a great deal with this stuff than there are people who find that it comes easy.
Valuation-Informed Indexing represents a paradigm change. That’s why.
It’s not one thing that is new. The foundation stone is new. The entire model for understanding how stock investing works is new. Shiller’s “revolutionary” (his word) 1981 finding turns everything on its head. It’a all good. Shiller turned stock investing into a virtually risk-free enterprise. So it is a huge advance. But people have to be exposed to it a lot of times and from a lot of different angles and people have to be able to ask a lot of questions to truly get it.
Some of the behavior of you Goons is truly criminal. But all the evidence that I have seen tells me that your confusion over how this works is for the most part genuine. I believe that that’s true of the Wall Street Con Men as well. I believe that just about all of them see that there are problems with Buy-and-Hold. But they don’t see an alternative and so they tell themselves that the problems are not that grave and that things will somehow work out. I believe that, if people like Bogle and Benrstein and Burns knew how much human misery they were causing, they would flip today. I don’t think of these people as bad people although I obviously believe that they have done very bad things by letting the cover-up continue on so long.
My boy Timothy “gets” the concept better than anyone else in the family. He’s not old enough to understand all the history and context. But we have had several long conversations about it in which he has asked some highly intelligent questions. That tells me that he gets it to a greater extent than most.
Most people struggle with this. It’s NOT hard. But it’s a way of thinking about stock investing that is very different from how people have become accustomed to thinking about stock investing in recent decades. A lot of people are engaging in a lot of funny business. But there is a lot of genuine confusion too. People need to know that. That’s an important part of the story.
The fact that my wife struggles to fully understand this stuff does not tell me that it is not important to open the internet up to honest posting on the last 33 years of peer-reviewed research. It tells me the opposite. It tells me that it is CRITICAL that we all pull together to get the word out re what really works. We ALL need to know how to invest effectively for the long run. The fact that the wife of the person who has worked this so hard for 12 years struggles with some of it is an amazing fact. It is an amazing fact arguing that we all need to work a lot harder to separate myths from realities and to figure out what the research is really telling us.
I hope that helps a bit.
Rob
Yogi Bear says
“Shiller turned stock investing into a virtually risk-free enterprise.”
1. Shiller would not say that (because…)
2. Shiller does not believe that.
Rob says
That explains why you respond to anyone who explores the implications of Shiller’s findings with 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. You are so confident of the merits of the Buy-and-Hold strategy that you understand that all discussion of the 33 years of peer-reviewed research showing that it can never work for a single long-term investor must be blocked.
That certainly makes good sense, Yogi.
I believe you.
Rob
Yogi Bear says
Please.
Don’t chop them in half — GUTS.
It seems hugely odd.
Mine!
A sign of perversity.
Rob says
Goon poetry?
Rob