Set forth below is the text of a comment that I recently posted to another blog entry at this site:
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 other 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 implications 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.