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:
Your first sentence is the only accurate thing you have posted. You seem to be like OJ Simpson. OJ talks about searching for the “real killers” and you are telling us all your stories about the nasty “goons” and the “buy and holders” that are causing an economic disaster. Maybe you and OJ can join forces to solve the world’s problems.
There really are Goons, Sammy. And there is really only one question that a person needs to ask himself to prove to himself that there are.
Everyone agrees that Shiller’s 1981 finding that valuations affect long-term returns is of huge importance. Shiller was awarded a Nobel prize for his work. Giving the man a Nobel prize is our way as a society of saying “this is huge.” So that point is locked-in certain.
Another point is locked-in certain. John Bogle made zero changes to his Buy-and-Hold strategy as a result of the hugely important Shiller findings. Anyone can look up what Bogle was saying prior to 1981 and what he says today and see that he is saying exactly the same thing. So Bogle ignores this hugely important finding. Again, there’s zero legitimate controversy re this matter.
The only possible explanation of these two locked-in certainties is that there has been a 35-year cover-up. The rational human mind cannot come to any other conclusion.
Now —
People have a big problem with this conclusion. The Buy-and-Holders are good and smart people. All fair-minded people see this. And they follow Buy-and-Hold themselves. This is beyond dispute. If they were pushing a bad strategy to make money, you sure wouldn’t think they would be following the bad strategy themselves. But there is no question but that they follow it — that’s also a lock-down certainty. And there are thousands and thousands of independent agents involved here. What are we going to believe, that they are all involved in some grand conspiracy. To say that is akin to saying that the moon landing was faked. It’s a pretty darn far out-there proposition.
So we are left with a number of locked-in certainties that cannot all be so! It’s a conundrum! It’s very hard to figure out how all of these locked-in certainties can all be so. But it is also a logical impossibility for them not to be so. This is tough stuff. I sweated blood trying to figure it out.
The answer is — cognitive dissonance.
You have to understand cognitive dissonance to make sense of investing today. If you get cognitive dissonance, all the pieces of the puzzle click. That’s the solution to the riddle.
The Buy-and-Holders really are good and smart people. I am certain of this. They really do believe in Buy-and-Hold. They could pass lie detector tests. They are not engaged in a conspiracy in the way that the word is normally used. They are not trying to trick people. They are trying to help people.
But they ARE aware that they are ignoring Shiller’s 1981 finding! It hurts them that this is so. They try to ignore this. They push the reality out of their minds. It causes them to doubt their belief in Buy-and-Hold. And they cannot bear to entertain doubts! It would mean that they messed up for many years. It would mean that they hurt millions of people. They cannot stand to think that that might be so. So they push the idea out of their minds. This is what is going on.
I LOVE the Buy-and-Holders. You think of me as their enemy. That’s not what I am. I am trying to show how the Buy-and-Holders got all but one point right and changed investing in a very powerful and positive way by doing so. They missed one point — valuations. They missed it for a perfectly understandable reason. Indexing was not available at the time they developed the strategy and long-term timing (price discipline) does not work without indexing. So it was not even possible for them to get it all right at the time they were developing their strategy. They did the best they could given what was available at the time.
Our problem is that as a society we have to fix the mistake they made. Our economic system will collapse if we don’t do this. So this is not optional. It is 100 percent imperative. The Buy-and-Holders have always wanted to get it right. So we are all on the same side. The only rub here is that we have to fix the mistake 35 years down the road from when it was made and lots of people have been misled re the realities over the course of those 35 years. That’s why this matter has become so “controversial.” It’s hard to acknowledge a mistake that has been doing damage to millions for 35 years.
As a society we need to do everything we can to make the Buy-and-Holders feel okay about acknowledging the mistake. We owe them that because they have made very important contributions. But we also owe them a correction of the mistake. They don’t want to make mistakes! The mistake is hurting them as much as it is hurting all the rest of us. So we cannot give on that point. We need to insist that there be open debate re these matters and that, once there is widespread acceptance of the idea that valuations must always be considered when making asset allocation decisions, the mistake will be corrected in all of the literature in this field.
That’s the story. The Buy-and-Holders are good people. But they really did make a mistake. And it really does need to be corrected. They didn’t kill anyone with malicious intent, like O.J. did. But they did make a mistake that has hurt millions of people and that needs to be corrected. We all need to be working together to get this done. We need to be 100 percent honest but we also need to be 100 percent charitable. Both things are imperative given the circumstances that apply here.
I hope that helps a bit.
I naturally wish you all good things. It has never been my intent to cause you to feel any discomfort or pain or anguish or upset. I am just trying to help you see that there is another way of thinking about how stock investing works and that it is exciting stuff that I truly believe represents the future in this field.
Rob
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