Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Unfortunately, analogies don’t make an invented reality any less invented.
The purpose of the analogy is to help people understand what is going on, Anonymous.
No, the analogy by itself does not make what I am saying true. I certainly agree with that point.
The comment that I was responding to was something to the effect of “if Bogle were behaving in a corrupt manner, it would be easy to get people to pay attention to that.” I can see how someone would think that. I certainly thought it myself prior to May 13, 2002. I believed in Bogle. I believed in Motley Fool. I believed in all of my friends at the Early Retirement Forum. And on and on.
If you had told me at that time that Greaney would be successful in his efforts to get me banned at Motley Fool, I would have said you were nuts. All I would have to do is to contact the site administrator and tell him what Greaney was up to and that would solve the problem. That didn’t work out so well for me, did it?
Bogle is a great person. There is no one alive who believes that more strongly than I do. But he is a human and he is flawed and he makes mistakes and then he is tempted to cover up those mistakes rather than acknowledge them. That’s the reality.
People who love Bogle have a hard time accepting that. That’s why I mentioned Paterno. There are many people who love Paterno as much as the people who love Bogle love Bogle. Paterno’s accomplishments were real. He was also a great person. He was also flawed. When the stuff came out about what happened at Penn State, there were students who protested in support of Paterno. They didn’t care about the facts. They still loved the guy. Like it or not, that’s the way the humans are.
It’s my job to make sense of this for people. You have a hard time accepting that Bogle did anything wrong. So I am offering analogies to help you see that the people taken in by false claims do not appreciate at the time that they are being taken that the claims are false. The people who loved Nixon at the time he was being investigated couldn’t appreciate what the evidence showed because their real love for the man made it impossible for them to do so. The people who loved Paterno at the time things were coming out about Penn State couldn’t appreciate what the evidence showed because their real love for the man made it impossible for them to do so. The people who love Bogle today cannot appreciate what the evidence shows because their real love for the man makes it impossible for them to do so.
People are not rational creatures. That’s the core story here. People are rationaliZING creatures. They make decisions as to what to believe based on emotion. Then they concoct rationalizations to support those emotional choices.
The question is — What happens when the money disappears from their retirement accounts?
The emotions CHANGE. When that happens, you will no longer see investors concocting rationalizations for Buy-and-Hold. You will see the opposite. You will see people directing their mental energies to concocting all sorts of overly negative appraisals of what the Buy-and-Holders did. In those days, people will be saying that Bogle INTENTIONALLY got it wrong. Which is a take that is as emotional as today’s popular take that he did not get it wrong at all.
My job is to help people avoid both extremes. Bogle is a great man who made a mistake. That’s the reality. Both parts of that sentence are true and both parts of that sentence are important realities that need to be known by all investors.
The analogies do not make what I say so. The purpose of the analogies is to take the discussion out of the investing realm, where people’s emotional biases control them, and to show how the same basic dynamics have played out in other areas of human endeavor. People behave emotionally in ALL endeavors. Including investing. If you want to understand how investing works, you need to gain an appreciation of how things go down in other areas of human endeavor. Because it is the same humans who make decisions in both non-investing contexts and in investing contexts.
I hope that helps a bit.