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:
Is today’s topic part of your transition to the political arena that you have been speaking about over at your website?
It is. That’s the issue that I have been thinking about the most in recent months.
We all want to invest effectively. We are all on the same side re that one.
But we all carry a Get Rich Quick urge within us, which we try to hide from ourselves. So we all engage in self-deception during bull markets re the size of our investment portfolios (please understand that I have been guilty of this myself — I am not saying that I am immune from this universal inclination).
That’s the tension. We want to know the real numbers so that we can plan our financial futures effectively. But we also want to fool ourselves re those numbers. How do we as a society get about the business of incorporating the findings of the last 35 years of peer-reviewed research into our understanding of how stock investing works?
My belief, based on conversations with tens of thousands of investors that I have had over the past 14 years, is that we need to see concrete evidence of how dangerous Buy-and-Hold is before we will be willing to abandon it. We have 145 years of historical return data. My initial thought was that that would do the trick. The last 14 years of discussions have shown me that that is not so. We need more. We need to see current-day realities showing how dangerous it is to get the numbers that we use to plan our retirements wildly wrong.
We of course cannot gain access to that until prices crash. So I have come to the belief that we are not going to make it to the other side until prices crash.
But a price crash is going to bring on a lot more than just concrete evidence that Buy-and-Hold doesn’t work. A price crash will send the economy back into a recession because trillions of dollars of spending power will disappear from consumers’ life savings. A deepening of the economic crisis will bring on further mistrust of the political establishment, which will make politics on both the left and the right even more contentious than what we have seen this year. All of these things are connected.
I have come to the conclusion that these problems need to be solved in an integrated way. When I say “we need to correct the errors in the Old School retirement studies,” the people reading those words hear “we are going to see another crash and a deepening of the economic crisis.” They fear that, they don’t want to let in that reality, and so they tune out my words and I don’t get to first base on the safe withdrawal rate question. People are smart enough to appreciate these connections on some level of consciousness even though they don’t permit themselves to integrate them into their thinking enough to cause them to lower their stock allocations.
The good news here is 50 times more good than the bad news here is bad. That’s the message that I need to get out. Once people appreciate how big an advance this is, they will welcome the idea of spreading the word all over the internet re how the last 35 years of peer-reviewed research permits us all to live far richer lives than we ever before imagined possible. But people are just not going to hear that message until the next price crash leaves them no other options. And, when that happens, people are going to be scared about the economic and political effects that could follow from that crash.
My job will be to reassure people that the news really is good and not bad. The risk here is that we will all panic following the next crash and make things worse than they need to be. My job is to put forward a balanced message: Yes, it is unfortunate that we ignored Shiller’s research all these years but the reason is that we are flawed humans and those same flawed humans have achieved some amazing breakthroughs over the past 35 years that puts us all in a very amazing place on a going forward basis.
I am today working through in my head how to present this message in a balanced and effective way. I don’t have it all figured out yet. I am in the early stages of thinking through the problem. You are right to note that this column is one of my early efforts to think things though and to push myself to a fuller understanding of what is going on in all of our minds and hearts at this point in the proceedings.
That was a good and interesting and stimulating question, Sammy. Thanks for taking time out of your day to post those words here.