Set forth below is the text of a comment that I recently posted to another blog entry at this site:
OK, then it’s only a question of who’s more likely to be right – you, or a thousand experts with far more intelligence and experience than you.
You are right that there are thousands of people with more intelligence and experience than I possess who say that I am wrong, Anonymous. We agree on that.
What you are not addressing is the intimidation factor.
There was a time when the research really appeared to say what the Buy-and-Holders say it says. These intelligent and experienced people you refer to are also POWERFUL and WEALTHY and INFLUENTIAL people. They built careers around promotion of the Buy-and-Hold Model before the research that discredited it was published. Sixteen years passed between the publication of the research that for a time seemed to support Buy-and-Hold and the research that showed that there is precisely zero chance that it can ever work for even a single long-term investor. When these powerful and wealthy and influential people learned that they were going to have to throw away 16 years that they had spend developing their careers and their businesses, they balked. Instead, they LIED about what the research said.
A reasonable argument can be made that the word “lie” is excessively harsh here. What Shiller showed was, in his own words, “revolutionary.” Revolutionary insights are generally not integrated into a society’s thinking immediately. Fama’s research led to the development of the Buy-and-Hold Model for understanding how stock investing works, a paradigm that directs an investor’s thought processes on every strategic issue that he considers. Shiller’s research demolished that paradigm (while affirming many of the powerful insights developed by the Buy-and-Holders that were not core enough to be the foundation stone of the paradigm — for example, the Shiller Model [Vauation-Informed Indexing] lends support to the Fama claim that short-term timing can never work).
The Buy-and-Holders truly believed in their work. They were excited about their insights and their ability to change the world for the better. Shiller’s 1981 research ruined all their hopes for the future. It SHOULDN’T have. Shiller’s work BUILDS on Fama’s work and on the insights of the Buy-and-Holders. His work makes the earlier work MORE IMPORTANT AND MORE VALUABLE. His work posed no real threat to the Buy-and-Holders so long as they promptly incorporated it into their own work.
But the Buy-and-Holders, as smart and experienced as they are, suffer from the terrible affliction of being human. They did not feel comfortable saying the words “I” and “Was” and “Wrong” any more than John Greaney felt comfortable saying those words when he discovered on the morning of May 13, 2002, that his retirement study got the numbers wildly wrong. Instead of THANKING Shiller for the wonderful contribution he had made that enhanced the value of their own work, the Buy-and-Holders elected to IGNORE Shiller’s revolutionary finding, to pretend that it did not exist, to LIE about this development.
This was a stupid, stupid, stupid, stupid, stupid decision.
All of the troubles that we are experiencing today stem from this stupid decision. Had Bogle walked up to the front of a large room in 1981 and said the words “I” and “Was” and “Wrong” (or at the bare minimum the words “I’m” and “Not” and “Sure” — those words would have launched a national debate which would have led to the same place as the swifter-acting words in not too long a time), there would be no economic crisis today. There would be no one going to prison. There would be no one destroying discussion boards and blogs. There would be no hundreds of thousands of business failures. There would be no millions of unemployed. There would be no millions awaiting failed retirements. And on and on and on.
My good friend Jack Bogle made a terrible, terrible mistake in 1981. We can’t go back. There’s no sense in wishing he could. But there IS sense in trying to understand WHY Bogle made the mistake. What the heck possessed my good friend to do this terribly stupid thing that has caused so much human misery in the years since?
Jack Bogle started out as a little boy. In 1981, he was a scared little boy walking around in big boy’s clothing and being applauded everywhere he walked. When he learned that he had been giving bad investing advice for a good number of years, HE WAS SCARED OUT OF HIS LITTLE-BOY PAINTS!
Do you see that, Anonymous? You need to understand this part of the story to understand every thing that is taking place today.
Had Bogle acknowledged his mistake in 1981, there was not one soul on the planet who would have made fun of him for it.
No — check that. I shouldn’t say that there was not one. The proper way to say it is that there was not more than one. There was one. The one was Jack Bogle himself!
Jack Bogle is, as you say, intelligent and experienced. Intelligent and experienced people have a certain trait that you might have noticed. THEY ARE HARD ON THEMSELVES. Jack possesses that trait. He DEMANDS THINGS OF HIMSELF that others would not demand of him if they were in his shoes.
So a voice within our good friend Jack Bogle attacked Bogle for having made the mistake he had made. This voice said all the things you hear me saying today, except ten times worse. The voice said: “You stupid boy, Jack! Anyone with a brain could have seen what Shiller has shown. You have ruined everything! Everybody is going to laugh at you when they find out! You have ruined millions of middle-class retirements! You will lose your reputation! You will probably lose all of your money! Your friends, people who listened to your foolishness, will lose THEIR money! You may even be thrown in jail! What a stupid, stupid, stupid boy you turned out to be!”
Jack isn’t stupid. But he has a voice within his brain telling him that he is. Most intelligent and experienced and accomplished people have one. On issues relating to money, that voice gets even stronger than it is when speaking about other issues. People don’t like to lose money. When an intelligent and experienced and accomplished human finds that he has made a mistake that has caused millions of people to lose LOTS of money, that self-critical voice can get very loud indeed. That’s what happened with our good friend Jack Bogle, the smart and striving and loving boy who grew up into a smart and flawed and self-critical man.
Bogle experienced emotional pain when Shiller showed him the piece of the investing puzzle that he had missed in earlier years because it wasn’t yet available to the humans in the days when our good friend Jack was building his reputation. There is a phenomenon that our friends in the psychology field have discovered that often kicks in when bright people like Jack Bogle come to feel intense emotional pain as the result of some mistake they have made. That phenomenon is called “Cognitive Dissonance.”
Bogle began telling a huge lie in 1981. His position required of him that he walk to the front of a large room and say the words “I” and “Was” and “Wrong.” He didn’t want to. He really, really, really, really, really didn’t want to because of what the mean voice within him was falsely telling him about what those words signified. The human brain has a switch that can be pulled in such circumstances. It is called The Rationalization Switch.
Aristotle called us humans “The Reasoning Animal.” Psychologists have learned in recent decades that there are often circumstances in which it would be more accurate to call us “The Rationalizing Animal.” Our brains can do amazing things. But once our will directs them not to find truth but to avoid truth, all of those amazing powers are employed to cause CONFUSION rather than an understanding of the realities. Our good friend Jack Bogle went into Rationalization Mode in the year 1981.
And all those who followed him of course did the same.
You know all the b.s. that they have poured out into the world in the years since.
None of it addresses the key point shown by Shiller — the exercise of price discipline is every bit as important when buying stocks as it is when buying any other good or service available for sale in this Consumer Wonderland of ours.
It’s all been b.s. ever since. We have never heard a word of truth from any Buy-and-Holder since 1981. Because the foundation stone of the entire model was shown in that year to be a lie. And the Buy-and-Holders who could not bear to acknowledge the lie in 1981 could bear to do so even less in 1981 and even less in 1983 and even less in 1984 and so on and so on and so on.
Lies produce bad fruit.
We are today seeing the bad fruit produced by the mountain of lies told by our Buy-and-Hold friends for 33 years now.
We are hurting. Big time.
And the price gets much higher with the next crash.
You need to come clean. Bogle needs to come clean. ALL Buy-and-Holders need to come clean.
You possess the power today to delay the important business of coming clean a bit longer. That means MORE pain for you. MUCH more. Smart move!
Or you can come clean by the close of business today. As your friend, I can tell you that that’s the true smart move. But of course I have little confidence that you will choose the smart move given your 12 years’ worth of decisions choosing more and more and more pain for yourself. My sadness over that reality doesn’t make it any less of a reality.
Bogle possesses intelligence and experience. All of the Buy-and-Holders do.
What good is it doing any of them? What good is intelligence and experience when the trickery it permits you to pull off ends up landing you in a prison cell?
Bogle needs to combine his intelligence and experience with some integrity, Anonymous. All of the Buy-and-Holders need to do that.
They need our help. There are times when it is hard to act with integrity. Having your friends standing by you can make a difference.
I am there for you. I am there for Bogle. I am there for ALL the Buy-and-Holders.
I am there to HELP.
Not to pretend to believe in your mountain of lies.
I am trying to reduce the number of prison sentences, not to add to them. Any action you will get out of me will be chosen with that goal in mind.
I wish you all good things.
As I demonstrate with every word that I put forward in response to your comments and questions here.
My best wishes, old friend.