Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
Warm wishes? How does that align with your comments about prison sentences, Bernie Madoff comments, made up death threats, goons, $500 million settlements and all those other silly comments you make on your own website? Why is it that your site is filled with that, but you seem to avoid it here? Is it because you are worried that people will think you are a nut-job?
The stuff that you are referring to is process stuff, Sammy. My site is not filled with process stuff. I do indeed address the process side of things there and there is indeed a lot of material there on the process side at this point. In particular, the daily blog entries mostly deal with the process side of things. I report on my conversations with you Goons, which sometimes deal with substantive questions but which more often than not deal with process-oriented issues. There is a lot of process stuff at the site. But there is even MORE substantive-oriented stuff. The site is balanced. I don’t ignore either side of the overall project of moving us from Buy-and-Hold to Valuation-Informed Indexing and I don’t think it would be right for me to do so.
I do have warm wishes for you. I do wish the best for you. The suggestion in your comment is that it would be more charitable for me to ignore the process side of the matter. That is not so. We all want the same things. We are all on the same side. We all should be working together to enhance our understanding of how stock investing works in the real world and to share what we learn with all other investors. We are not doing that today and that needs to change. The only way to change things is to address the process side of things. This is not optional. It is imperative.
The Buy-and-Hold Pioneers made a good number of amazing contributions. You certainly have never heard me say otherwise. I feel the greatest respect and affection possible for all of my many Buy-and-Hold friends. The big problem on the process side of the question is that as a society we have let the Buy-and-Holders down.
The Buy-and-Holders made one huge mistake. They proved with peer-reviewed research that short-term timing never works. Then they jumped to a hasty conclusion that long-term timing (price discipline) doesn’t work either. Nothing could be further from the truth. Long-term timing (price discipline) is 100 percent required. It ALWAYS works. There has never been a single exception in the 145 years of stock market history available to us for study today. The peer-reviewed research has shown this to be the case for 34 years now.
We need to tell people. We need to stop saying that timing doesn’t work or that timing isn’t required and start saying instead that short-term timing doesn’t work and that long-term timing is price discipline and always works and is always 100 percent required. Then we all begin obtaining far higher returns at dramatically reduced risk. Which is what we all want.
The only thing holding us back are these process-oriented matters that you suggest I not discuss. Bogle made a mistake back in 1981, when Shiller published the peer-reviewed research showing that valuations affect long-term returns and that thus long-term timing (price discipline) always works and is always 100 percent required for all investors seeking to keep their risk profiles roughly stable and Bogle failed to step to the front of a big room and acknowledge his mistake in thinking that long-term timing might not be required. Bogle’s failure to do that put us on the track we are on today, where we have 34 years of peer-reviewed research saying one thing and the vast majority of “experts” saying the opposite. We have to get off this track.
We cannot get off this wrong track by discussing only substantive issues. We certainly should be discussing substantive issues and I do and I encourage all others to do so as well. But we must deal with those process-oriented issues as well. Shiller doesn’t discuss how-to-invest questions in his amazing book Irrational Exuberance.. Why do you think that is? It’s because he knows that it would upset Buy-and-Holders for him to do that. They have their lives staked on Buy-and-Hold and they believe that it is a research-based strategy when in reality it has not been that for 34 years now. People get very upset when they learn that. So Shiller (and countless others) keeps it zipped.
We all have to stop keeping it zipped. We need to have a national debate about the IMPLICATIONS of Shiller’s “revolutionary” (his word) findings. What Shiller added to the story of how stock investing works in the real world is the biggest advance in the history of personal finance. We cannot afford to pass up the benefits that come from making practical use of this advance (which means engaging in in-depth analysis of the implications of his findings). But, given the 34-year cover-up, the statements made by those who do this come off as shocking to most investors hearing them. The Old School retirement studies get the numbers wildly wrong? We now know how to reduce the risk of stock investing by 70 percent? The promotion of Buy-and-Hold strategies caused the economic crisis? Huh? Huh? Huh? That’s the reaction we commonly see from ordinary investors when they are exposed to those kinds of claims.
We need to change that. The only way to do it is to launch a national debate. The Buy-and-Holders should of course be part of that debate. There are lots of different viewpoints on all these questions and they all need to be heard. But each of those three claims (and lots of others that generate almost an equal amount of controversy) are perfectly reasonable statements given what the last 34 years of peer-reviewed research in this field shows us re how stock investing works in the real world. They come off as shocking only because they have been so rarely heard. And they are rarely heard because of the 34-year cover-up. That cover-up MUST be addressed for us all to move forward.
The Buy-and-Holders did not directly intend to engage in a cover-up. They truly believe in Buy-and-Hold. They follow it themselves. They are good people, not bad people. They are smart people, not dumb people. They didn’t appreciate the far-reaching significance of Shiller’s findings when first exposed to them. But here we are all the same.
The easy way to see that there has been a 34-year cover-up is to ask yourself what changes Bogle has made in the Buy-and-Hold Model in response to Shiller’s findings. There have been no changes even though Shiller’s research is deemed of such huge importance that he was awarded a Nobel Prize for it. It may well be that Bogle truly believes that it is safe for investors to ignore Shiller’s findings (that’s what I believe to be the case). Bogle still has a responsibility to address the Shiller findings, to tell all those who follow his advice WHY he thinks it is safe to ignore these findings.
Bogle also has a responsibility to do everything in his power to insure that Shiller’s findings are discussed in an open and forthright manner at any discussion board or blog that purports to be telling people how to invest in stocks. That’s a responsibility that applies to anyone who puts himself forward as an expert in this field. Shiller’s research has been public information for 34 years now. All experts have an obligation to keep up on the new research as it is published. Bogle has failed to honor this responsibility. He is obviously aware of Shiller’s revolutionary findings. He has not said why he has failed to update the Buy-and-Hold strategy to reflect these important findings.
I write about the process-oriented stuff at this column. My focus here is on the substantive side of things but I do not ignore the process side of things here (this very comment is obviously process-focuced). The most important reason is that the process side is hard for people to take. People HATE it when I talk about the process side. So I tend to play down the process side. My aim is to get people interested in Valuation-Informed Indexing by showing them what a huge advance it is. Once people get interested, they will be inclined to explore the process-side questions on their own. And, as you note, I have a mountain of material re the process side at my site. I don’t duck those questions, I just tend to play them down at places other than my own web site.
That’s the story. We all want the benefits that follow from permitting open and full discussion of the last 34 years of peer-reviewed research. But the cover-up has gone on so long that it makes the Buy-and-Holders look bad when we talk about these matters in a clear way. I do not want to make the Buy-and-Holders look bad. I want to make the Buy-and-Holders look very, very good. We wouldn’t have Valuation-Informed Indexing today had Buy-and-Hold not come first. We all owe the Buy-and-Holders a huge debt for building the foundation on which VII has been built.
But those darn process-oriented issues are standing in the way of the Buy-and-Holders getting the credit they deserve for all of their many powerful insights! I am trying to bring the nasty business to a full and complete stop. Once we bring the cover-up to an end, it is downhill sledding for all of us, good stuff piled on top of good stuff piled on top of good stuff. These are exciting times. We all are on the threshold of achieving a far better and more rewarding understanding of how stock investing works in the real world. Good for us!
But we must as a society deal with those nasty process questions first. Most people are today afraid to talk plainly about their true beliefs about how stock investing works. I have spoken to many academics who are afraid. I have spoken to many journalists who are afraid. I have spoken to many investment advisors who are afraid. This must change. This is unacceptable.
No one can do his or her best work so long as he or she is afraid to speak plainly and clearly and honestly. So the cover-up really must be brought to a full and complete stop, the process questions really must be addressed in a frank although charitable way.
But not in every single column entry! The substantive questions are of huge importance too. So the substantive side of things is going to continue to be my focus here. Those who want to know more about the process side of things should go to my blog, where I explore those questions in more than half of the daily entries that I put forward.
Does that help?
I naturally wish you all the best that this life has to offer a person, my good friend.