Set forth below is the text of a comment that I recently put to another blog entry at this site:
None of this is about having information or lacking information, Anonymous. It is about giving in to the Get Rich Quick impulse or reining in the Get Rich Quick impulse.
The Get Rich Quick impulse is risk. There is now 34 years of peer-reviewed research showing that. That research is based on 140 years of historical data. When you give in to the GRQ impulse (that is, when you fool yourself into thinking that there might be some mystical,magical alternate universe where price discipline might not be required when buying stocks), you add to your risk. When you make use of tools showing you how dangerous Buy-and-Hold strategies are, you add to your risk. It’s been that way since the first stock market opened for business.
There were institutional investors who had information coming out of their ears who jumped out of windows during the Great Depression. Their tons of information didn’t help them one whit. Books and articles and calculators and podcasts that told them about the importance of price discipline when buying stocks would have helped them a great deal.
When my mother was alive she used to say to me that she couldn’t understand why my older brother still smoked because “he’s so smart.” He’s plenty smart. But being smart or not being smart has absolutely nothing to do with why somebody smokes or doesn’t smoke. Having lots of information has nothing to do with why one becomes addicted to a Buy-and-Hold strategy or not. The Get Rich Quick impulse is an emotional thing. It is not rooted in one’s brain.
That’s the problem I have with you. You are plenty smart. But you use your intelligence to avoid the findings of the peer-reviewed research in this field, not to explore them. I call this model “Valuation-Informed Indexing,. So I make a suggestion that being informed makes a difference. However, the full truth is that it is not being informed that does the trick. Not by itself.
If you never become addicted to smoking in the first place because you are informed of the dangers, then in that case being informed can make a difference. And being informed can make a difference once you have an epiphany and come to see how much a pure Get Rich Quick approach can hurt you. But there is something beyond being informed that is needed to make one an effective long-term investor.
I don’t today have an entirely clear understanding of what that something is. Why do some people get this stuff and others have such a hard time with it?
I look at the people who get it and try to identify similarities. That has given me little clues but nothing that has impressed me enough for me to be able to write full articles describing the secret. I think that part of it is caring about something other than investing enough to overcome the power that the Get Rich Quick urge has to fool us all about what works in investing.
I care deeply about journalism. I once believed in Buy-and-Hold. So I have as much of a Get Rich Quick urge as you. I think that what pulled me out was my love of journalism. In the early months of these battles, I saw a story. And I couldn’t let that go. I had to figure it all out, learn what I needed to learn to tell the story properly. I think that is what helped me see things that others couldn’t see and rise above all the emotional pressures.
John Walter Russell and Wade Pfau cared about their statistical craft. They are researchers and getting the numbers right means something to the. So they overcame the emotional pressures too, completely in John’s case and partially in Wade’s case. I think they both saw this as sort of a puzzle and they wanted to see the puzzle pieces click in. That gave them what they needed for the information to have an effect.
Not everybody who invests is going to be a journalist or a researcher. So we need to identify other motivators for seeing through the garbage GRQ stuff. I have a vague idea that the answer is to have positive investing emotions. People in this field cite fear and greed as investing emotions all the time. Those are both negative emotions. Greed brings on bull markets, fear brings on bear markets. I think there have to be positive investing emotions too. People need to nourish hope and love as investing emotions that could counter the two negative investing emotions.
For example, you might have hopes for an early retirement. Those hopes might give you what you need to counter all the Buy-and-Hold garbage and to become able to study and understand clearly the last 34 years of peer-reviewed research. Or you might feel love for a son or a daughter and want to help them obtain a strong financial footing and that love might empower you to see through the Get Rich Quick fantasies of a world where price discipline doesn’t really matter all that much.
Do we care enough about our long-term investing results? We think we do. I am beginning to question whether we really do on a deep level. The long term is a distant thing for most of us. It is an abstraction. We get a little surge of positive feeling every time prices go up because seeing that makes us feel that we are smart, it flatters us. To overcome that, we need to have as strong a feeling about the long-term. And to care about the long-term, we need to have positive investing emotions like love and hope as well as negative ones like fear and greed.
That’s part of the reason why I use that catch phrase in my conversations with you Goons where I point out that “I love my country.” That’s a positive emotion. I try to focus on that, how our country will be better off when honest posting is permitted, to help me work up the courage to violate the Social Taboos that tell us all that we should not hurt people’s feelings by telling them about what the peer-reviewed research shows us about the chances that GRQ strategies will be successful in the long run. I love my country. That’s a reason for wanting people to know the realities of stock investing.
These are still sketchy ideas. I think coming to a better understanding of this aspect of the question is an important project for coming days. Why is it that the peer-reviewed research clicks for some while other perfectly smart people remain mired in all the Buy-and-Hold/Get Rich Quick garbage? Informing people is important. I am a journalist, I obviously care about informing people. But there is another element here, some sort of emotional element, that is needed for the information side of things to click.
I am no smarter than you Goons. But I get it and you don’t. Why? What do I possess that you lack?
I didn’t get it myself prior to the evening of August 27, 2002. Why does the current-day me get it when the prior-day me did not?
Why does Bogle sort of, kind of get it and sort of, kind of not get it? Why is the same so for Bernstein and Burns and Swedroe and Schultheis and Piper and Tresidder?
Hope and love are the counters to fear and greed, I believe. But what do we need to do to help people to feel more hope and love and for the information we supply them to therefore make a difference in aiding their efforts to understand this stuff?
I think I feel a column coming on!