Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Why is the entire historical record relevant?
Take a look at this article, Laugh:
Nate Silver gets it. Using data as a guide to understanding something leads to more uncertainty, not less. When we are ignorant of how something works, we can delude ourselves into a false feeling of confidence. Data helps us to overcome our subjective biases because it is objective, because it is real and not b.s. But there’s an unfortunate inclination to become overconfident about what data appears to teach, to stop thinking because of a belief that the data has answered all the questions. There are always new questions. Use data properly and you will never stop searching for new insights. The wonder of research is that it pokes holes in dogmatism. When you see people becoming dogmatic about what the data appears to show at one particular point in time, you know that those people are on the wrong track.
The Buy-and-Hold “idea” (that there is no need to exercise price discipline when buying stocks) has been crashing stock markets ever since the day the first stock market was put in place. In 1981, those awful days of human ignorance came to an end. A fellow who has since been awarded a Nobel prize for his amazing work provided us the piece of the investing puzzle that brought us to where we had long wanted to go — we now have a model for understanding stock investing that truly makes sense, that truly works.
Bogle got us close. He is a hero too. But Bogle is a gravely flawed hero. He got us close by citing the powerful insights developed through study of the historical return data in the pre-1981 years. Then he let his ego destroy him. Bogle turned his back on all the good work he had done up to that time when he elected in 1981 not to launch a national debate as to what Shiller’s “revolutionary” (Shiller’s word) research meant for Buy-and-Hold but to instead go into cover-up mode and act as if the amazing finding that valuations affect long-term returns just didn’t exist.
Hence 35 wasted years in which thousands of people who could be helping us all to better understand this stuff instead live in fear of speaking in plain and understandable terms about what they really believe re stock investing. Hence 14 years of a Campaign of Terror against the Retire Early and Investing discussion-board communities in which dozens of boards and blogs were destroyed or compromised and in which those participating in the campaign have set themselves up for long prison sentences in the days following the next price crash. Hence an economic crisis that has already gone down in the books as the second worst in U.S. history and which has a good chance of taking over first place in the days following the next price crash, an economic crisis that has already brought on millions of job losses and which is likely to cause millions of failed retirements in coming days.
I learned why the entire historical record is relevant from my good friend Jack Bogle. Read his work if you have any doubts.
I learned why honesty is important just from living life on this planet.
Valuation-Informed Indexing is the first HONEST research-backed investing strategy. It has all the advantages of Buy-and-Hold because it is rooted in research, just like Buy-and-Hold. But it avoids the huge disadvantage of Buy-and-Hold by incorporating HONESTY into the mix. VII isn’t a con. VII doesn’t cause economic crises or failed retirements. Valuation-Informed Indexers don’t need to surround themselves with Goon squads to make their case. We really have peer-reviewed research that supports our claims. VII is the real thing, not the marketing gimmick that Buy-and-Hold has become in the years since Bogle made his tragic decision to go into cover-up mode rather than to come clean about what the recent peer-reviewed research actually says about how stock investing works.
The historical record is what keeps us honest. The historical record is our protection against the con men who push smelly Get Rich Quick schemes on us for the purpose of turning a quick buck and who destroy millions of lives in the process. The historical record is where its at. Making HONEST use of the historical record is the future of investing analysis. Everyone in this field will be doing it once prison sentences for you Goons have been announced.
That’s my sincere take re these terribly important matters, in any event.
My best and warmest wishes to you and yours.