Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Are your financial statements full of lies?
I don’t hold any stocks. So, no.
Stocks are different than other asset classes, Anonymous. Stocks are the only asset class that permits the owners of that asset class to vote themselves huge raises. You can’t do that with Certificates of Deposit. The owners of CDs carry the same Get Rich Quick urge within them that the owners of stocks carry within them. But CD owners can’t do anything to temporarily push the value of their asset class up to crazy and unsustainable levels. They would do it if they could. But the opportunity just isn’t there. The certificate says what the interest rate is that is paid and that’s the end of it.
You need to think through a bit who it is that sets the price of stocks. We say it is “the market.” Fine, but who comprises this “market.” The market is the people who own stocks! Not exactly an unbiased group, is it? Asking the owners of stocks to set the price of stocks is like asking Trump supporters who they think won the debate held last Monday. Gee, I wonder what they are going to say?
You’ve probably heard that the Trump people back up their claim that Trump won the debate by citing internet polls held at places like the Drudge Report. Do you find those claims convincing? I do not. Those polls are loony tunes. To get an accurate read of who won the debate, you need to use a scientific methodology.
It’s not enough to ask just Trump supporters and it is not even enough to ask both Trump and Clinton supporters. Most Clinton supporters are going to say that Clinton won regardless of what actually happened just as most Trump supporters are going to say that Trump won regardless of what actually happened. To obtain an accurate read, you need to be sure to survey some of the people in the middle, the people who are open to being persuaded either way.
It of course works the same way with stocks. My bias is different than yours. I am biased in favor of Treasury Inflation-Protected Securities (TIPS) in the same way that you are biased in favor of stocks because that is the asset class in which most of my money is invested. The difference is that investing experts don’t stand to make money by persuading people to buy TIPS while there is a ton of money to be made persuading people to buy stocks. So you don’t see any of these complicated, phony baloney arguments re how TIPS are always the best asset class no matter what. There’s not a mountain of money to be made telling lies about TIPS, so no one bothers telling such lies.
LOTS of people go to the trouble to tell lies about stocks. People become millionaires telling lies about stocks. That’s the Buy-and-Hold Story in a nutshell. The Wall Street Con Men are not our friends, they are people out to turn a quick buck and people who are able to rationalize the lies they need to tell to achieve “success” in this field.
It all changes once we open the internet to honest posting re safe withdrawal rates and scores of other critically important investment-related topics. The people who work in this field are like the people who work in all other fields. They WANT to be able to do honest work; nothing could be more clear. But, once they see that their careers will be destroyed if they dare to “cross” the Buy-and-Holders by doing so, they get real quiet real fast about what we have learned from the last 35 years of peer-reviewed research in this field. Once this story gets written up on the front page of the New York Times and your prison sentence is announced, people in this field are going to be running from any association with Buy-and-Hold as fast as they can run. We will then be able to put all the nasty stuff behind us.
Buy-and-Hold is rooted in an old way of understanding how stock investing works, Anonymous. We learned the realities in 1981 and the stock-selling industry had already adopted Buy-and-Hold as its model at that time and a decision was made not to rock the boat by telling people about the mistake that had been made. The rationalization no doubt was that we were unlikely ever again to see fair-value prices in any event (stock were priced at one-half fair value at the time), so why make waves? And then, once you have told lies about something, it becomes harder and harder over time to come clean. 35 years later, here we are.
We could report stock prices accurately. There is no intellectual limitation stopping us from doing so. The obstacle is the corruption and the widespread knowledge that telling the truth re how stock investing works means that people like Jack Bogle will be going to prison. People who work in this field are afraid to say that. Bogle is a powerful guy. People who work in this field don’t want to cross him. It’s not so hard to understand once you think it through a bit.
How did Roger Ailes get away with what he did for years and years? How did Bill Cosby get away with what he did for years and years.? How did all those Catholic priests get away with what they did for years and years?
To bring corruption to an end, we need to EXPOSE it. I exposed the Buy-and-Hold Con. As you never tire of pointing out, I have not been able to earn a dime in this field for 14 years running as a result. There is a price to be paid for exposing corruption this widespread. Most people in this field earn big incomes. They don’t want to pay that price. There’s the “conspiracy” that you never tire of asking about.
You could know the true value of your stock portfolio if you wanted to. It’s not hard to divide by two. You don’t want to know. You like the fantasy of believing that your portfolio is really worth double its fair value. It makes you feel smart to believe that you have done such a good job “saving” so much. So people who can rationalize exploiting your human weakness tell you the lies that you demand of people who make a claim to “expertise” (In what? Marketing?) in this field. And the beat goes on.
If you want to know the truth about stock investing, it’s there for you. It’s not hard to figure out. But you are not going to learn the truth about how stock investing works by listening to marketing experts. When you buy a car, do you believe everything that the dealer tells you about the car you are looking at? That’s what you are doing when you listen to someone like Bogle. He is in the business. He makes money when you buy stocks. He feels that it is his job to lie to you. That’s how he turns a buck. That’s how he makes a living.
A salesman is the LAST person you should turn to for advice re whether you should buy something or not. A salesman is too compromised. If you want to get anywhere, you need to listen to someone who possesses at least a tiny bit of independence.
All of these words will pass through one ear and out the other today. I get that. Perhaps you will revisit this page following the next price crash, when most of your life savings goes up in smoke. Perhaps you will be able to appreciate then who your true friends are and who your true enemies are. Whenever you find yourself opening to the message, these words will still be here. The good stuff that is housed at this site was written for your benefit as well as for the benefit of the other millions of middle-class investors who need access to some honest words re this subject.
I wish you all the best, man. Hang in there.