Set forth below is the text of a comment that I recently posted to another blog entry at this site:
How will you be rich? You already told us that our significant net worth’s are all “cotton-candy nothingness” and that it will go away in the next crash. If your fantasy is correct, how will you collect money from anyone if they don’t have anything left?
It is your goonishness that is causing all the problems you have understanding what the research says, Anonymous. You exaggerate all the time. You state things more strongly than I said them. You take things to extremes. Please try to calm down.
We are a very rich country. That’s actually a big part of the problem here. We have been following gravely flawed investing strategies going back to the beginning. Not because we are dumb. Because mankind was not put on Earth knowing everything and because we had not yet figured everything out. We have suffered because of this lack of knowledge in the past. But as we become richer, we have more wealth invested in stocks and the suffering grows ever greater. Fortunately, we now know what we need to know to stop the suffering. Unfortunately, we have not yet as a society worked up the courage to stand up to those who have refused for 33 years now to acknowledge that we had it wrong before.
We are heading to a stock crash of roughly 65 percent. Some of that is a real loss (the portion that gets us down to a fair-value P/E10 of 15) and some of it is the product of the irrational depression that follows whenever we realize our mistake in having pumped prices up so much (the portion that takes us from from 15 to 8).
We will perceive ourselves to be far less wealthy following the crash. Stock prices will no longer be pumped up, they will be pumped down. So the perception will be that things are very bad. But the perception will be an exaggeration (undervaluation is every bit as goonish and foolish and non-research-based as overvaluation). Things will look bad. There will be lots of scary articles in the newspapers. But the deep reality will remain that we are a rich people. It will be a struggle to get people to acknowledge that (just as it is a struggle today to get people to acknowledge that at times of insane overpricing their portfolio statements do not reflect their real wealth). But responsible people will do what they can to get the message heard and understood.
There IS a risk that the risk will cause a complete economic collapse. It happens. Since it happens, it is obviously theoretically possible that it could happen to us.
If we have a complete collapse, then what you are suggesting here is so. We will all go down together and I will NOT be a very rich man, I will be a very poor man. So will everyone else. That would break my heart, Anonymous. I don’t want to see it happen. I acknowledge that it is a possibility. I do not believe that it will happen. But I acknowledge that it is a possibility.
The other possibility is that the hearts of the Buy-and-Holders will melt and we will all move together to the far better world that awaits us on the other side of The Big Black Mountain. Shiller’s breakthrough is the biggest breakthrough in the history of economics. If we move forward, we are ALL going to be richer people. Even you will be richer. You will be in prison for a time. But prison sentences eventually come to an end. When you are released, you will be released into a country of even greater wealth than it possesses today. You will be part of that. Good for you.
This is a win/win/win/win/win, Anonymous. Everyone benefits. That’s what is so cool about it. This debate is not like the debate over the budget deficit, where going with what one side wants means taking something from the other side. This is a debate where everyone wins at the same time. Huge advances in understanding of important subjects are like that.
The problem we have today is that one side THINKS it loses if we permit discussion of the peer-reviewed research of the past 33 years. Some people have their egos tied up in Buy-and-Hold and they cannot bear the thought of acknowledging that they made a mistake. But that is foolishness. Time moves forward, humankind learns things that it did not know in the past, and we all end up better off. That is a core principle on which our nation was built.
By behaving in ways that land you in a prison cell, you are GIVING UP many of the benefits that you would otherwise obtain with the advance. That’s an amazingly stupid thing to do. But that’s the path you have chosen. You have let a phony pride count for more than your own desire to live a better and richer life. Yuck! You know? Yuck and Double Yuck!
I have played it the other way. I have generated hundreds of amazing insights into the realities of stock investing over the past 12 years. Those insights will make me one of the richest people in the United States following the crash. I don’t like all the nasty stuff I had to endure. I don’t like it one little bit that things played out that way. But I think it would be fair to say that it is largely because of the nasty stuff that I was able to do this. If things hadn’t been so nasty, there are thousands of smart and good people who would have developed these insights long before I came on the scene. Your nasty stuff cleared the field of competitors and left it to me to pick up all the prizes. Um — Thanks, man!
We will be a very rich people following the crash. There will be plenty of money remaining to make me a very, very wealthy man. If we mess up and we continue the Ban on Honest Posting following the crash, we will all go down together. It is my opinion that Jack Bogle’s heart will melt following the next crash and we will all achieve some wonderful advances together. My personal guess is that Jack will be the lead figure in seeing that the check for $500 million is promptly delivered to me. I will say “thanks, man” and tell everyone how I learned about the errors in Greaney’s study by reading Jack’s book and how there wouldn’t be any Valuation-Informed Indexing if not for the hugely important efforts of the Buy-and-Hold Pioneers. And we will all live happily ever after.
Until the next time the humans mess up and find themselves in a pot of burning troubles!
I hope that helps a bit, my old friend.