Set forth below is the text of a comment that I recently posted to another blog entry at this site:
So the next stock market drop will be blamed on higher interest rates and not on goons or buy and hold.
I guess we won’t see anyone going to prison and you will have to do without your $500 million. Better cancel your order for the new Porsche.
You are accurately describing the game that the Buy-and-Holders have been playing for a long time now, Anonymous. They take credit for anything that happens that is good and they blame others for anything that happens that is bad. When Taylor Larimore is able to buy a house with the Pretend Money he gets from following a Buy-and-Hold strategy, he calls it “The House that Jack Built.” But when we see the economic crisis that inevitably follows from the widespread promotion of this strategy, he does not refer to it as “The Economic Crisis That Jack Built.” Heads, the Buy-and-Holders win. Tails, everybody but the Buy-and-Holders lose.
Your suggestion is that everyone will continue to permit the Buy-and-Holders to get away with such nonsense. I don’t buy it.
My personal belief is that even the Buy-and-Holders won’t permit themselves to get away with such nonsense following the next crash. The Buy-and-Holders are not bad people. They did not INTEND to cause an economic criss. They did. It happened. There is 34 years of peer-reviewed research showing why we always experience an economic crisis when large numbers of people are persuaded that Buy-and-Hold strategies can work in the real world. So the Buy-and-Holders messed up big time. But I have not seen any evidence that they INTENDED all this bad stuff. I have been studying this stuff for a long time and it is my strong impression that the Buy-and-Holders did NOT intend all this bad stuff and that they are on one level of consciousness horrified to see it playing out.
Do you see?
We are not on different sides. We are on the same side. Even you Goons did not intend all this bad stuff. So even you Goons are going to want to set things right following the next crash. Then of course we all have no problem. From that point forward, it is good stuff piled on top of good stuff piled on top of good stuff. For ALL of us. Valuation-Inforrmed Indexers and Buy-and-Holders alike.
Humans respond to incentives. If you want people to perform good acts, you reward them for them. If you want people to avoid performing bad acts, you penalize them. That’s how we do it in every field of human endeavor other than investing analysis. With investing analysis we encourage advisors to perform bad acts (to say that price discipline is not always 100 percent required) and we discourage advisors from performing good acts (to always point out that it is essential to exercise price discipline). Why the heck do we do that? Why are all the rules that apply in every other field of human endeavor turned on their heads in the investing advice field? That’s the question that we all need to come to terms with to be able to bring this economic crisis to an end and move on to the greatest period of economic growth in our history.
It’s not because getting investment advice right doesn’t matter. It’s because getting investment advice right matters so darn much. If investing advice didn’t matter that much, the Buy-and-Holders would have corrected their error when it was discovered in 1981. They would have said “sorry” and moved on to giving better advice and no one would have been upset and that would have been the end of it.
The reason why it didn’t happen that way is because it is a very big deal when someone gives bad advice on how to finance a retirement plan. People cannot fix their retirement plans when they go bust. They are too old to start over and earn all the money they need for retirement a second time. So it is very, very, very hard for the Buy-and-Holders to acknowledge their mistake. The mistake has had devastating consequences. We all need to keep that in mind when we are trying to persuade them to come clean.
And we need to keep in mind that this was so in a smaller way way back in 1981. The Buy-and-Holders were excited about their own discoveries, which they believed were taking us all to a very good place. Shiller’s 1981 research discredited the corner-stone on which the entire Buy-and-Hold strategy was built. The Buy-and-Holders were horrified to think that they had been giving dangerous advice. They became defensive. They went into cover-up mode. Not because they are bad or stupid. Because they care about their readers and clients and possess a sincere desire to help them and because they could not bear to think that they were hurting the people they thought they were helping.
Do you see, Anonymous?
This didn’t start out as financial fraud. It started out as a sincere effort to do wonderful things. And, indeed, many of the things the Buy-and-Holders did really were wonderful. Part of the answer here is making that point over and over and over again. The more we make the Buy-and-Holders feel good about all of their very real and important contributions, the less defensive they feel and the more willing they become to come clean about the issue (valuations) re which they messed up.
You are suggesting that they will never come clean, that the Buy-and-Holders are 100 percent corrupt and that they will continue to use their power and wealth and connections to destroy anyone who dares to “cross” them by posting honestly re any important investment-related question. I don’t see it. I believe that you are wrong. I believe that the Buy-and-Holders are going to come clean and that we all are going to make it safely to the other side of the big black mountain and that in coming days we all will be achieving financial freedom many years sooner than we ever imagined possible back in the days when we were collectively ignorant of the realities of stock investing.
The Buy-and-Holders have blocked the learning process that we all need to see take place for far, far longer than I imagined possible. I will give you that one. It is my job to figure out WHY that is so. I do not believe that it is because the Buy-and-Holders are corrupt through and through. It would take a long time for me to put forward all the reasons why I am convinced that that is not so. If you ask for me details, I will give them. But I cannot spell it all out in a single post. What I will say here is that I am personally persuaded that the Buy-and-Holders started out with good intent and generally possess good intent right up to the current day. That’s an important part of the story.
The people who now run the Bogleheads Forum used to refer to themselves as “Vanguard Diehards” back when their board was run from the Morningstar site. Does that mean that they were evil? It does not. It means that they really, really, really believed in what they were saying. Being a “diehard” is a bad thing when it means that you are arrogant and not willing to listen to other points of view. Being diehards has gotten these people in a lot of trouble and caused millions of people to suffer serious financial harm. But the feeling that caused these people to become “diehards” was a positive one. THE BUY-AND-HOLDERS WANT TO HELP PEOPLE! Good! That’s wonderful!
We need to take this positive energy and turn it to positive purposes.
Do you see?
The Buy-and-Holders want to help people. They know all about the laws of the United States. We need to persuade them that they need to FOLLOW those laws. You can’t commit felonies just because you are a “diehard.” That’s 100 percent unacceptable. So they need to rein in this impulse they have to lash out at anyone who talks about the implications of the last 34 years of peer-reviewed research in this field. The financial fraud stuff is 100 percent unacceptable. But the other stuff is great. The fact that the Buy-and-Holders want to help people is great. They fact that they care so much is great. The fact that they have so much energy and determination is great.
You are suggesting that the energy that the Buy-and-Holders have been putting to negative purposes for 13 years now can never be put to positive purposes. I just don’t buy it. If the Buy-and-Holders were bad people, I might buy it. But they aren’t! They are good people. They are smart people. They want to help. They are determined. That’s good. That’s what we want. So long as they don’t take the diehard part so far that they are committing felonies under the laws of the freakin’ United States.
I don’t buy into any of your negative scenarios, Anonymous. That’s all just garbage Goon talk.
I of course get it that bad stuff has happened. But the root realities here are 50 times more good than they are bad. We are going to get things on the right track. It might well take another price crash to get us there. But I am firmly convinced that we are going to get things to a positive place. I am sure.
Do you know who taught me what I needed to know to see that Greaney’s retirement study got the numbers wildly wrong?
It was John Freakin’ Bogle! It was by reading Bogle’s book that I figured out what I needed to know to take Greaney on.
What a terrible, terrible person that Jack Bogle is! How horrible that he helped us all learn how to calculate safe withdrawal rates properly and by doing so opened the door to hundreds of additional powerful insights that we have developed together over the course of the past 13 years!
You see things though a Goon perspective. I do not. You see only negative stuff. I see tons and tons and tons of positive stuff, enough positive stuff to make us the luckiest generation of stock investors ever to walk Planet Earth.
We are headed to a good place. Bogle is going to come clean. So are all the rest of the Wall Street Con Men. So are you Goons.
I am sure.
Hang in there, man. It gets better. A LOT better.