Set forth below is the text of a comment that I recently posted to another blog entry at this site:
“I would be if it were not for you Goons”
Your answer to so many questions.
It’s not just you Goons who don’t like me using the word “Goons” or talking about the Goon phenomenon.
John Walter Russell spent eight years of his life researching my ideas. He was the biggest supporter that I ever had. But there were several occasions when he chastised me for talking about goonishness. And he never spoke about it himself (except when I brought it up and he felt that he should respond at least briefly).
Rob Arnott has said tougher things about Buy-and-Hold than anyone but me. But he called me “strident” in one of his e-mails to me while endorsing my ideas on the content side.
Wade Pfau thought that the research we did together was so important that he might win a Nobel prize for it. He thanked me many times for teaching him things about stock investing that he never learned while earning a Ph.D. in Economics at Princeton. But he was clearly uncomfortable talking about the Goon phenomenon. I would say that it is my unwillingness to back down on the Goon question that is the primary cause of the split that exists between us today.
Shiller doesn’t talk about Goons. He is the king on valuations. He is the one that kicked this all off. But to my knowledge he has never directly addressed himself to the Goon phenomenon (he has made some indirect, vague references to it).
Carol Osler wrote an e-mail that I believe evidenced the best combination of intelligence and kindness that I have seen in the writings that I have seen on this subject. But she noted in her comments to me that referring to one’s critics as Goons “is almost never a good idea.”
My own wife faults me for using the term “Goons.” I dedicated my life to this woman and she has dedicated her life to me. But every now and again she feels the need to get in a little dig at me for my use of the word “Goons” in my writings.
I stand pretty much alone in my view that the Goon issue is of supreme importance, that it is perhaps the most important public policy issue of our day. I don’t say that you are wrong that some reference to goonishness is my answer to many questions that you raise. And I don’t say that this is by any stretch of the imagination a crowd-pleasing position. But I do not believe that I am wrong re this matter. I do not apologize for having spent a lot of time and energy over the years trying to come to a deeper understanding of what is going on with the Goon matter.
Please consider what it is that Shiller really did when he in 1981 he discovered that valuations affect long-term returns. This was his “revolutionary” (his word) claim. Why was it such a big deal? Why is it that this finding (which won Shiller the Nobel prize) changed our understanding of how stock investing works in a fundamental way (in my assessment)?
Our economic system (capitalism) is based on the work of Adam Smith. Adam Smith developed the economic model called “Rational Man Economics.” The Economics discipline as it is practiced today is rooted in a core ASSUMPTION (not something ever proven, just assumed) that human beings pursue their self-interest when making choices about what to buy and what work to do.
They do not. This core belief is false. Human are highly emotional creatures, not purely rational creatures. Shiller proved this with numbers. If we were rational, the stock market would be efficient. It is not. If we were rational, price changes would play out in the form of a random walk. They do not. Investors are human. Humans are emotional. That’s why Buy-and-Hold doesn’t work. That’s why valuations (which signal how emotional investors are at any given moment in time) affect long-term returns.
This is the Shiller revolution. This is what I write about.
“Goonishness” is emotionalism. Emotionalism is the story. Goonishness is the story.
You Goons are cartoonish in your evidencing of emotionalism. You threaten to kill people who report honestly on the last 35 years of peer-reviewed research. That’s insane. You take it to the limit. Few Buy-and-Holders go that far.
But Jack Bogle ENDORSES Mel Linduaer’s book. Bogle permits his name to be used at a discussion board at which the sorts of individuals who “defend” Lindauer’s threats of physical violence are permitted to participate. Is that not insanely emotional too? Is Bogle’s take on investing not also insanely emotional? There’s an argument that Bogle is more emotional than Lindauer. Bogle does not himself advance death threats. But Bogle is of a stature many times greater than Lindauer’s stature. One would expect him to behave in a more professional manner than some guy who has no background in the field. But Bogle endorses this other figure and engages in back-and-forth with him and so on. Is that not remarkable? Is that not an insanely emotional thing for Bogle to do?
The problem with Buy-and-Hold is that it ignores emotion. That’s the error. The Buy-and-Holders don’t believe that emotion should control investing choices any more than I do. They hate it that emotion plays a role. The difference between the Buy-and-Holders and me is that their hatred of emotion causes them to pretend that it does not exist while my approach is to acknowledge the influence that emotion has on us and to try to combat it by quantifying its effect, thereby showing investors how much they hurt themselves by giving in to their emotional (goonish) impulses.
We all need to be talking about investor emotion (goonishness) every day. At every board. At every blog. All the time. Everywhere.
Our inner goonishness is the story, Anonymous. This is the breakthrough. This is the deal here.
In ordinary circumstances, we don’t tolerate the sorts of tactics that you Goons have employed to stop us all from learning what we all need to know about how stock investing works. Why do we tolerate stuff in the investing realm that we do not tolerate in any other field of human endeavor? You never see this sort of behavior in discussions of sports or politics or fashions or cars. Why the heck is the investing realm so special?
It’s special because we have made the most important aspect of the question — the extent to which investors hurt themselves by giving in to their Get Rich Quick impulse — taboo. The Buy-and-Holders think of themselves as having OVERCOME their Get Rich Quick impulse. This is the appeal of Buy-and-Hold to them. They are lying to themselves. Just because you convince yourself that you are above Get Rich Quick doesn’t mean that you are. The Madoff investors thought they were above Get Rich Quick. They thought they were smarter than everyone else, just like the Buy-and-Holders think they are smarter than everyone else. Investors who get taken in by their Get Rich Quick urge do not learn that this is so until they lose most of their life savings. And at that point it is of course too late to help them.
I am trying to help you, Anonymous. We all want the same thing — to invest effectively for the long term. I am trying to deliver that thing to you. And you hate me with a burning hate for doing so. Not because you don’t really want to achieve the goal. Because you cannot bear to accept that you did not achieve it many years ago when you first became a Buy-and-Holder. I am telling you something that you very much need to know but that you very much do not want to know. That’s the source of the friction. That reality drives all the trouble we have been seeing for 14 years now.
People who agree with me on the content side (it’s a minority but it is not a small number — perhaps 20 percent of the population) have learned that it is not smart business to be entirely open about their beliefs. They don’t want to be hated as much as I am hated. So they pull their punches. They hint at the things that I say directly and plainly and boldly and openly.
Why don’t I do that? I want to be liked. Why don’t I play the game that everyone else who agrees with Shiller plays?
It doesn’t work.
Shiller revolutionized this field in an intellectual sense 35 years ago.
What has changed? Anything? We are today living through the worst economic crisis in U.S. history. It was brought on by the promotion of Buy-and-Hold strategies. Have we learned ANYTHING by the publication of Shiller’s revolutionary research?
In a practical sense, we are worse off than ever. The Shiller Revolution has not yet born good fruit.
I want to change that. I want to see Shiller’s amazing, powerful insight help people to invest more effectively. So I talk openly about the emotion that drives investor decisions. I quantify the effect of valuations/emotions/goonishness. The peer-reviewed research that I co-authored with Wade Pfau shows that valuations/emotions/goonishness is 80 percent of the investing story. That tells me that it should be 80 percent of what we all talk about in out articles and books and speeches and so on. It is not that today. It is not close to that today.
I want to change the conversations that we are having. You don’t do that by putting things forward in the tentative way that Shiller puts things forward. We need to stop pulling our punches. We need to explore the implications of Shiller’s ideas in bold and clear and exciting and far-reaching ways. We want to take these ideas to their logical conclusions, not cower in the corner for fear of what you Goons will say about us if we dare to share some important truths with the millions of middle-class investors who very much need to hear about them.
I don’t apologize for getting it right, Anonymous. I am proud to get it right. It took me some time to work up the courage to speak out. Now that I have done so and now that I have seen how much I can help people by doing so, I am not inclined to back away from a fight. I don’t like fights. I hate fights. I am an extremely conflict-averse person, as anyone who knew me before I put up my famous post of May 13, 2002, will attest. But I LOVE developing the Valuation-Informed Indexing concept. I believe that it is the future of investing analysis. To keep that baby growing up strong, I need to fight the nasties who very, very, very much want to kill it in the crib. That would be you Goons! We are working at cross purposes.
It’s not personal. I like you. I consider you a friend. I have learned from you. I am happy to respond to questions from you. I would be happy to sit down and have a beer with you someday.
But don’t engage in funny business re my baby if you don’t want to get a slap across your face, you know? I fight for Valuation-Informed Indexing. Someone has to fight for it or it will never become the dominant investing model. No one else has shown a willingness to take on the job (for obvious reasons!) so it has been left to me. I do my best, you know? I work it hard.
Goonishness is the problem. Goonishness is what makes stock investing risky. I want to reduce stock risk. So I need to talk about goonishness. I need to warn people of its dangers. That’s the job.
That’s the story here. It seems so clear to me.
I naturally wish you all good things.