Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Maybe a better question is this: Which specific financial experts will NOT be going to prison in your opinion?
There’s a concept that is referred to in the law books as “industry practice” or “industry standard” or something like that. The idea is that one indicator of fraud is engaging in behavior outside the norm of the field in which you work.
That concept won’t do the job in the investing advice field. The entire industry is corrupt. We have known for 33 years that there is zero chance that a Buy-and-Hold strategy can ever work for even a single long-term investor. But people in the field noticed that the pure Get Rich Quick approach brings in the bucks just fine, peer-reviewed research be danged.
The standard here has to be broader. We certainly don’t permit 12-year cover-ups of errors in studies that people use for an important purpose in any other field. And we obviously adopted the laws against financial fraud for a reason. If we are going to send Bernie Madoff to prison, it’s more than a little hard to justify not doing the same for the sorts of individuals who have put forward posts in “defense” of Mel Linduaer and John Greaney, who obviously have caused 500 times the human misery.
We can’t send everyone in the field to prison. It’s not practical.
But I think it’s fair to say that the millions of people whose lives have been destroyed are not going to be in a terribly forgiving mood when they learn about the 12-year cover-up. So we are going to need to see action that insures beyond any doubt whatsoever that a message will be sent strong enough to insure that nothing like this will ever happen again.
My guess is that, soon after the next price crash, a number of people will come forward. They will say that their consciences just will not permit them to keep quiet any longer. Then there will be a deluge of truth-telling. . Lots of people will be hoping that by coming forward early, they will either be able to avoid prison or limit their sentences significantly. And it will be clear that the Buy-and-Hold Mafia just does not have the power to maintain the cover-up any longer.
We will see a media frenzy. That will lead to congressional hearings.
My guess is that there will be responsible people who will come forward with the aim of bringing the nasty side of things to a quick end so that we can all get about the business of taking advantage of the wonderful research findings that the Buy-and-Hold Mafia has been denying us for 33 years now. It wouldn’t surprise me if Congress adopted some form of amnesty for advisors who recommended Buy-and-Hold strategies but who did not show any evidence of bad intent.
I believe that the prison sentences will largely be limited to those who advanced threats of physical violence or who made demands for unjustified board bannings or who advanced hundreds of acts of defamation or who participated in or covered up threats of physical violence against academic researchers. I don’t think that we will be hearing any objections to long prison sentences for those sorts of individuals. It might be that there are other sorts of insanely abusive behavior that has been going on behind the scenes and that that will come out when people are coming forward with honest accounts in an effort to save their skins. But it would be the same general sort of behavior we would be talking about. People don’t care about people making mistakes. People get angry when people are dishonest and when they engage in a cover-up. It’s the people who have engaged in clear acts of dishonesty or cover-ups who should be most concerned about their futures, in my assessment. That means you, Anonymous!
Once the first prison sentences are announced, I believe that all the ugly stuff will come to a quick end. We will see a total reversal. We live in the most exciting time to be an investor in the history of the planet. There are billions of dollars to be made providing millions of middle-class investors with tools that are consistent with what we have learned from the peer-reviewed research over the past three decades. Once there is an announcement of ANY prison sentences, we will be seeing good stuff piled on top of good stuff piled on top of good stuff.
It may take decades for all the criminal and civil cases to work their way through the system. Does it really matter all that much? The good stuff here is 50 times more good than the bad stuff is bad. I think that will be the focus for all except those personally involved in the criminal and civil cases. I obviously cannot say how each case will be resolved. It is going to depend on the behavior of the individuals involved. There will be testimony taken at trials. That’s how the system works, no?
I ain’t going to prison! I know that much! There is no one else alive who has done as much to rein in you Goons as I have. There is no one in a close second place.
Fair enough, Anonymous?
Take care, man.
Rob
In your mind, the people going to prison are those that had you banned from the various financial boards, correct?
The crime we are talking about is financial fraud, Anonymous. In a hyper-technical sense, anyone who has recommended a Buy-and-Hold strategy from 1981 forward is guilty of the crime. Yale Economics Professor Robert Shiller published peer-reviewed research in 1981 showing that valuations affect long-term returns. If valuations affect long-term returns, then there is zero chance that a Buy-and-Hold strategy (a strategy rooted in the idea that there is no need to change one’s stock allocation in response to big shifts in valuations) could ever work for even a single long-term investor.
I say that promoting Buy-and-Hold is financial fraud only in a hyper-technical sense because millions of good and smart people really do believe in it. I believed in Buy-and-Hold until the evening of August 27, 2002. John Walter Russell believed in Buy-and-Hold when he started working with me. Wade Pfau believed in Buy-and-Hold when he started working with me. You Goons follow Buy-and-Hold strategies yourselves. In ordinary circumstances, that would be pretty darn strong evidence that you believe in the strategies.
Shiller’s 1981 findings truly were “revolutionary” as he indicates in the sub-title of his book. People are not capable of integrating the implications of such findings into their thought processes in a day or a week or a month. We have as a society been struggling with this for three decades now. We understand intellectually that Shiller is right. But we “know” emotionally that Fama and Bogle are right. We recognize the importance of Shiller’s work. So we celebrate his book and award him a Nobel prize.
But his findings are painful to us because accepting them requires that we acknowledge that our most fundamental beliefs about how stock investing works are in error. So we suppress knowledge of what Shiller taught us. We ignore him while celebrating him. We bow our heads when his name comes up but we go right on following and endorsing the Buy-and-Hold strategies that we followed and endorsed in 1980, before Shiller had published the most important research ever published in this field. We act as if Shiller did not exist.
In short, we suffer from cognitive dissonance. When people cannot accept a truth, they suppress knowledge of it. We have as a people been suppressing knowledge of what Shiller showed to be so in 1981 for 33 years now.
Cognitive dissonance is not a crime. Financial fraud IS a crime. But cognitive dissonance to a large extent negates it. One element of the crime of financial fraud is bad intent. If someone advocates Buy-and-Hold with good intent, he is not guilty of the crime even though he has hurt people in very serious ways and even though there is 33 years of peer-reviewed research showing him why it was wrong for him to make the claims he made. An element of the crime is missing in such cases.
That’s not so in the cases of people who have advanced 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. Those people are suffering from cognitive dissonance too. But they have evidenced bad intent in a way that cannot be excused by cognitive dissonance.
These people have not only gotten the investing question wrong. They have made it impossible for us as a society to ever get it right. In all fields of human endeavor we correct mistakes by talking through new findings and different opinions. Gradually, we work our way to the truth. We cannot do this when the penalty for the “crime” of posting about the findings of the last 33 years of peer-reviewed research is career death.
Hundreds of academic researchers want to tell the truth about stock investing but do not feel safe doing so. Hundreds of investment advisors want to tell the truth but do not feel safe doing so. Hundreds of journalists want to tell the truth but do not feel safe doing so. Hundreds of economists would like to tell the truth about the cause of the financial crisis but do not feel safe doing so.
The members of the Buy-and-Hold Mafia have gone beyond just giving bad investment advice. They have engaged in acts of intimidation and deception that have stopped thousands of people who know the truth about these matters from speaking up. Those acts of intimidation cannot be excused in the name of cognitive dissonance. Those acts of intimidation need to be prosecuted as acts of financial fraud.
I am not a prosecutor and I will not be serving on any juries. I am a journalist. It is my job to tell this story in as fair and complete a way as I possibly can tell it. It is for others to decide precisely who will go to prison and for what length of time. If I were to ignore the fact that crimes have been committed, I would not be doing my job as a journalist. If I were to ignore the fact that crimes have been committed, I would be participating in the cover-up myself. I would be putting myself at risk of going to prison. Um — No thanks.
I love my country. Part of my job is to move the focus of the discussion to the substantive matters as quickly as possible. That means getting the criminal questions addressed as soon as possible so that we can put the ugly procedural side of this behind us. Ducking the reality that serious crimes have been committed helps no one. The longer that side of things is ignored, the more financial misery is caused and the angrier people will be when they lose most of their retirement money in the next price crash. The sooner the prison sentences are announced, the fewer people there will be who will go to prison and the shorter their prison sentences will be. To fail to address the crimes that have been committed during the 12-year cover-up is not an act of charity but an act of cowardice.
That’s my sincere take re these terribly important matters, in any event, Anonymous. I hope that the words above help a little bit.
Rob
“In a hyper-technical sense, anyone who has recommended a Buy-and-Hold strategy from 1981 forward is guilty of (financial fraud.)”
Hyper-technical, as opposed to in any way a legal sense.
“It is for others to decide precisely who will go to prison”
Since when? You have stated precisely, on countless occasions, that Pfau, Bogle, Greaney, and all Goons everywhere are all going to prison.
“I am not a prosecutor and I will not be serving on any juries.”
Now that much is absolutely certain.
Hyper-technical, as opposed to in any way a legal sense.
Anyone who continues to say that Buy-and-Hold is a research-backed strategy 33 years after the peer-reviewed research in this field showed that there is precisely zero chance that it could ever work for even a single long-term investor is guilty of financial fraud in the legal sense, X. I don’t think that those who held back from engaging in intimidation tactics will be prosecuted. But under a strict reading of the statute they are guilty of the crime.
You have stated precisely, on countless occasions, that Pfau, Bogle, Greaney, and all Goons everywhere are all going to prison.
I would say that Greaney and the members of his Goon Squad are at extremely high risk of going to prison. It is barely possible for me to imagine a scenario in which those who have posted in “defense” of Greaney on numerous occasions would not go to prison.
Pfau is at some risk. But I think there is a very strong chance that he will NOT go to prison. He was the first expert in this field to request corrections in the Old School studies. I believe that most people are going to feel sympathy for Wade when they hear his story.
I would say that Bogle is at more risk than Pfau but at less risk than the Greaney Goons. He is a giant. He is a hero to the middle-class. He has done more positive stuff than just about anyone else alive (I would rank Bogle second only to Shiller re the good he has done). But he also has permitted his name to be used at a board that permits posting by the sorts of individuals who have posted in “defense” of Lindauer and Greaney. My guess is that Bogle will not go to prison but I see it as a much closer call than it is with Pfau. I think that in the long run Bogle’s reputation will be restored and that he will go down in history as one of the true greats. That will certainly be the case to the extent that I am able to exercise any influence re this matter.
Rob
“Anyone who continues to say that Buy-and-Hold is a research-backed strategy…is guilty of financial fraud in the legal sense”
And you can produce exactly no one who agrees with you on that. Maybe I think Obama is a human/alien hybrid. Took me two seconds to find someone who agrees with me: http://worldnewsdailyreport.com/moon-astronaut-admits-on-deathbed-obama-could-be-an-alien/
That puts my two second quest ahead of your twelve year quest. We’ll see who gets to $500 million first.
I am not able to produce anyone else who will say publicly that those who continue to promote Buy-and-Hold strategies today are guilty of financial fraud, X. You have me re that one.
There was a time when it was not possible to produce one doctor who would say publicly that bleeding patients was not an effective treatment.
The Buy-and-Holders are not bad people. They are frightened people. They want to help their clients and readers. They want to talk out these issues and thereby figure out what they got right and what they got wrong.
But we all know that investing is an important topic. Intuitively, you would think that would make us more cautious about what we say on this subject. In reality, it has done just the opposite. We know how terrible it would be to get something wrong. So we have become highly reluctant to acknowledge mistakes. We all know that Fama’s findings cannot be squared with Shiller’s findings. Most of the articles that reported on the awarding of the Nobel Prize to both of these men commented on the weird reality that they say opposite things about how stock investing works. But we pretend that we believe that it is okay that all investors hear is the model based on Fama’s research and that discussion of the implications of the model based on Shiller’s research has been suppressed for 33 years.
We need to move on. We need to open the internet up to honest posting re what the last 33 years of peer-reviewed research says re safe withdrawal rates and re scores of other critically important investment-related topics.
If you don’t think that you are going to prison, then you don’t think you are going to prison. Don’t worry, be happy, you know?
I think you are going to prison. I could be wrong. I’ve been wrong before. It could be that it is happening again. If it were, I probably would be the last to know. Feel free to believe that I am wrong, okay?
I care about you. I think of you as a friend. A true friend doesn’t want to see his friend land in prison. So I am going to continue to do what I can to persuade you to get off of this awful, dark path on which you now find yourself.
But please feel free to continue walking that path if that is what floats your boat. It’s your life, not mine. You have the responsibility of running it, not me. Fair enough?
I don’t want it on my head that I failed to speak up when I had a chance to do something to get your prison sentence shortened a bit. So I am going to continue playing it the way that I have long been playing it. I have the responsibility to run my life. And I don’t feel comfortable even thinking about playing it any other way. I hope that is okay by you.
You are correct that there is no one else saying today that continued promotion of Buy-and-Hold is financial fraud. I absolutely believe that. Fama made a mistake. Shiller revealed the mistake. Bogle should have walked to the front of a room and acknowledged the mistake within 24 hours of the time he first heard about Shiller’s findings.
He didn’t do that. I don’t fault him too much for not doing it in the first 24 hours. Shiler’s findings were universally perceived as shocking. In these sorts of circumstances, these sorts of things have been known to happen.
The tragedy is that it got harder for Bogle to say The Three Magic Words with every 24-hour time-period that passed him by. There is now a mountain of evidence supporting Valuation-Informed Indexing and zero evidence supporting Buy-and-Hold. Buy-and-Hold has now caused an economic crisis. So it is really, really, really important that Bogle say The Three Magic Words by the close of business today. But it is a harder step for him to take than it has ever been before.
I didn’t create that reality and you didn’t create that reality. Bogle created it. But even Bogle didn’t create it with full knowledge of what he was doing.
We cannot change any of that.
We all live in the same country. We all are suffering from the economic crisis that Bogle caused. We all very, very much need to figure out how to bring that economic crisis to an end.
I love my country. So I am doing what I can.
I don’t pretend to be able to force you to do anything. I urge you to come clean. But that’s as far as I can take it.
I will continue to say that I believe that you will be going to prison following the next crash and I will continue to say that Bogle is at risk of going to prison following the next crash. Because that’s what the laws of my country say. And I believe that we should be applying the laws of our country to help us with the problems we face. That’s why we enacted those laws in the first place.
If you end up not going to prison, you end up not going to prison. That follows, right?
So don’t worry about it so much.
If you ever start to worry that you might end up in prison, please just let me know and I will do anything in my power to help you out.
If you continue to feel confident that you won’t be going to prison, please just enjoy that warm feeling with my blessing, old friend.
Is all of that fair enough for you?
It sure sounds fair enough to my ears.
I hope that helps a bit.
I naturally wish you all the best things that this life has to offer a person regardless of what investing strategies you elect to pursue.
Rob
“There was a time when it was not possible to produce one doctor who would say publicly that bleeding patients was not an effective treatment.”
Bleeding patients IS an effective treatment. For the right disorder.
Okay. So they got it partly right and partly wrong.
If you know the history, perhaps you can tell us whether they fixed the error when it was first brought to their attention or whether they destroyed people’s careers for a time in an effort to cover up the mistake. I know that sooner or later they corrected the error. Because we couldn’t have advanced to where we are today in our knowledge of how medicine works if they never acknowledged their error and corrected it and thereby permitted knowledge to advance.
Fama got it partly right too. And the Buy-and-Holders got it partly right. Do you think that the Buy-and-Holders deserve credit for what they got right? I sure do. But I know that they will not get credit for the good they did until they acknowledge the error they made. All that happens for so long as the cover-up continues is that we see more and more and more human misery. That’s nowheresville. That helps no one.
It’s been 33 years. We need to correct the error. Then we need to move on to better things.
Would you be happy to be living in a world in which doctors still bled patients both in the cases where that makes sense and in the cases in which it does not? I am happy that I live in a world in which we only bleed patients in appropriate circumstances. I think it is fair to say that the generation that comes after us will be grateful that in their day the experts in this field will only discourage the form of market timing that really does not work and will very strongly encourage all investors to always practice the form of market timing that is always 100 percent required and the form of market timing that always works by increasing returns while diminishing risk.
My best wishes to you and yours.
Rob
Rob, this prison sentence talk is just smelly garbage.
I don’t agree with you, Sensible.
The laws against financial fraud are part of our political system. Prison sentences are part of our political system. When I say that I love my country, I am saying that I think that our system is a good one. There is a reason why we have laws against financial fraud and there is a reason why we have prison sentences. It is to protect us from situations like this.
We should be enforcing our laws and putting people who violate them in prison. We should have started doing that a long time ago. Had we done that, we all would be in a much better place today.
Everything changed in 1981. If men were angels, Bogle would have given his “I Was Wrong” speech within a few weeks of when Shiller published his revolutionary research showing that valuations affect long-term returns. Bogle was working in this field. It’s hard to imagine that he didn’t hear something about this amazing research. He’s a very smart guy. So it is hard to imagine that it didn’t strike him that Shiller’s findings constituted a major challenge to the model for understanding how stock investing works that he had been promoting.
So he should have gotten up on a stage and said “I Was Wrong” or “Perhaps I Was Wrong’ or “It’s Beginning to Look As If I May Have Been Wrong About Some Things” or at least “I Don’t Really Think I Was Wrong But You Certainly Need to Know About This Research That Points in That Direction and We All Need to Be Exploring the Implications of This in Coming Days.”
He certainly should have said SOMETHING along those lines. Had he done so, lots of smart people would have gone to work and explored the question. Maybe the questions would have been resolved quickly, maybe not. We certainly would not have found ourselves in a situation where some guy whose only expertise in the field is that he figured out how to post stuff to the internet would on the morning of May 13, 2002, put a post to the Motley Fool site noting that John Greaney’s retirement study did not contain an adjustment for the valuation level that applied on the day the retirement began and we would have seen a nuclear explosion of abusive posts in response that would continue for 12 years to come.
So Bogle messed up. Big time.
Fine. But it wasn’t just Bogle who messed up.
Why didn’t journalists DEMAND that Bogle make some sort of speech?
Why didn’t economists put forward their own takes?
Why didn’t thousands of investment advisors integrate Shiller’s findings into their recommendations and write articles explaining why the new research changed our assessment of every strategic issue?
Why didn’t people develop new calculators?
Why didn’t the authors of the Trinity study include a warning in their retirement study that their calculations were all based on the pre-1981 research and that calculations done on the post-1981 research would yield very, very different numbers?
That’s the issue here. It wasn’t one guy who messed up. It was an entire society. Bogle messed up and most of us went along for the ride. Why?
Because there was so much freakin’ money to be made by doing so.
The Buy-and-Hold Lies generated $12 trillion in Pretend Money. That provides for a whole big bunch of marketing efforts. Every time another dollar of Pretend Money was created, someone was there to claim “credit” for it. “Hey, you have that dollar in your account because you believed the Lies that I told you! Stick with me, I’ll tell you even more Lies as time goes on and you can enjoy even bigger Get Rich Quick fantasies!” Those were the unspoken words spoken to millions of middle-class investors over and over again by the hustlers who continued to advocate Buy-and-Hold strategies for years and even decades after the peer-reviewed research showed that there is precisely zero chance that a pure Get Rich Quick approach could ever work for even a single long-term investor.
Humans are weak. Dangle $12 trillion in free marketing before their eyes and there is a good chance that they will do the wrong thing and rationalize away their ethical concerns. How does a society protect itself against something like that?
We protect ourselves with laws against financial fraud, Sensible. We protect ourselves with prison sentences.
That’s the wonderful role they play in our system. When we send people off to prison for massive acts of financial fraud, we help lots of people. We obviously help the millions of middle-class investors who need access to honest and accurate reports as to what the peer-reviewed research says. But those are not the only people we help. We help all the economists because we make it possible for them to do honest work. We help all the journalists because we make it possible for them to do honest work. We help all the investment advisors because we make it possible for them to do honest work. We help all the web site owners and bloggers and policymakers because we make it possible for them to do honest work.
We even help the freakin’ Goons! You Goons don’t want to go to prison. Had Motley Fool kicked John Greaney out on his rear end when he advanced his first death threat, John would not be on his way to a long stay in a prison cell today. He would have been banned from our community for six months. At that time, I would have put forward a post suggesting that we give him another chance to play nice and everyone would have agreed and that would have been that. Instead, he is in this horrible place today where he is going to prison himself and where a lot of his friends are going to prison with him. Huh? That’s a good development how?
That’s the magic of prison sentences announced at the proper time, Sensible. Prison sentences are our friends. They are an important part of our system. Prison sentences protect us from our darker, more goony selves. Prison sentences are like “You’re out!” calls in baseball. They send a signal that you are doing something wrong and that you had better change the way you play the game if you want to win the World Series. Take “You’re out!” calls out of baseball and you ruin the game.
Take prison sentences out of the investing advice game and you find yourself flooded with investing advice that constitutes financial fraud and in an economic crisis that darkens life for millions.
Thousands of our fellow community members have expressed a desire that honest posting on the last 33 years of peer-reviewed research be permitted at every discussion board and blog on the internet. Their voices are going to be heard. They are going to get what they want. I am going to see to it.
They are going to get what they want through the magical power of prison sentences. Prison sentences are wonderful stuff in the right circumstances. The announcement of your prison sentence will permit millions of good people to learn what they need to learn to enjoy far higher returns than they ever imagined possible while taking on far less risk than they ever imagined possible. That’s amazing, life-affirming stuff. We couldn’t do it without our laws against financial fraud and without our willingness as a society to send you and your Goon pals off to prison for a long, long time.
That’s the system that I love. That’s the country that I love.
Prison sentences for Goons smell very, very, very sweet.
It is goonishness and Buy-and-Hold strategies that are the foul smelly stuff causing so much human suffering. Yucko!
We’re on the one-yard line. Perhaps another year. Perhaps two.
Patience, Grasshopper! We’re all going to be famous! It’s all going to turn out for the best, just as John Walter Russell predicted many years ago! With every day that passes we inch a bit closer to that final wonderful paragraph of the story at which I peeked before working up the courage to advance that famous post of the morning of May 13, 2002.
Three Cheers for Prison Sentences! Three Cheers for Putting You Goons Away for a Long, Long Time!
Hang in there, man. It gets better. A LOT better. Yes, even serving your time in prison is better than living out the rest of your days with the prospect of a future prison sentence handing over your head.
My take.
Rob