Carl Richards at the fine Behavior Gap blog recently brought up The Question That May Not Be Asked: Is Passive Investing a bad idea?
Juicy Excerpt: In most of these discussions, many of the arguments that people make seemed to be informed by a fundamental belief in the efficient market hypothesis or modern portfolio theory…. I’m not saying that the efficient market theory is incorrect, that modern portfolio is dead, or that indexing/passive investing is the wrong way to invest. I am simply saying that…we ought to take the time to question the underlying assumptions. We must understand the underlying assumptions, then question and judge them against what really happened and make a decision for ourselves.
The Personal Finance Blogosphere needs to learn that this questioning the underlying assumptions business stuff can be dangerous. There are certain individuals amongst us who will jump on an opportunity like that to play Clark Kent and ask some mild-mannered-reporter-type questions.
Juicy Excerpt: I have brought this matter before a good number of big name “experts” (John Bogle, William Bernstein, Bill Bengin, Jonathan Clements, Larry Swedroe, Rich Ferri, Scott Burns, Micheal Kitces, Bill Schultheis). Not one has been able to give convincing responses to perfectly reasonable questions…. Today’s investing advice is not serious. It’s marketing-driven, not research-driven (the research that is employed is there to serve marketing purposes). Rob Arnott said it well when he observed that most of today’s conventional investing advice is the product of “myth and urban legend.” There is no “there” there.
In all seriousness, Carl done good. I encourage my fellow money bloggers to find out what brand of cornflakes he is eating and endeavor to give us more of the same. It has been my experience that asking a question is often a key step that must be taken by those with a serious interest in eventually learning the answer to the question.
The bogle heads and your favorite goon get a periodic Forbes column
http://www.forbes.com/2009/11/25/low-cost-index-funds-diversification-personal-finance-meet-the-bogleheads.html
I saw that the other day, JCL.
That column gives Mel an opportunity to reach a lot of people and to have either a good influence on the world or a negative influence on the world. My hope is that Mel will reach down deep and use the influence he has acquired for the good.
Do I believe that we are going to see this happen by the close of business today? Probably not.
Do I believe that there will come a day when we will see it happen? I do.
Rob
Excellent advice from Mel in that article.
–Start early (the earlier you start, the better off you’ll be, due to the power of compounding)
–Live below your means (that’s the real key to financial independence)
–Save and invest wisely (Vanguard is a good place to start–and stay)
–Asset allocation (Set it to properly reflect your “sleep-at-night” risk level)
–Keep costs low (As Jack Bogle is fond of saying “Costs matter.”)
–Diversify (Own the market. Indexing is an easy way to make sure you’ve got this covered.)
–Buy and hold (Markets will go up and they’ll go down over your investing lifetime, but it’s time in the market that counts, not market timing)
–Rebalance (Rebalance back to your desired asset allocation to control your risk level.)
We disagree, Evidence.
There is no one stock allocation that can reflect any investor’s sleep-at-night risk level at all possible valuation levels. A 60 percent stock allocation might be perfectly reasonable at normal valuation levels and be insanely dangerous at the sorts of valuation levels we saw in the U.S. market from 1996 through 2008.
Mel should of course say what he believes. And I think it is entirely possible (I personally believe that it is likely) that he believes what he wrote in that column. So I don’t object to him making the points he made. I see that as a plus.
However, I don’t at all see it as a plus for Mel to engage in the behavior he engaged in at Vanguard Diehards to silence those who were posting their honest views that were contrary to Mel’s views. That was low behavior. That was unethical behavior. That was sick behavior.
Mel needs to hold himself to a higher standard. And those of us who think of him as a friend need to insist that Mel hold himself to a higher standard.
That’s my sincere take, my Buy-and-Hold believing friend.
Rob
Some people need to be placed outside of hearing range. Just like in the real world, free speech has limits. Public nuisances get carted away.
In the Internet we have bans.
I certainly agree that there is a need for certain types of posts to be banned, Hello World. As you know, I have spoken out in support of bans on the abusive posting of Mel Lindauer and John Greaney and those community members who have posted in “defense” of the tactics that these two have employed to silence those posting honestly on the flaws in the Buy-and-Hold model.
However, there is no justification for a ban on honest posting solely because it is honest posting. The idea of a ban on honest posting is insane. A ban on honest posting helps no one. It hurts everyone.
We ban what we fear. I favor a ban on abusive posting because I have seen how much damage it has done to the communities that I love. You favor a ban on honest posting about the flaws of the Buy-and-Hold model. That’s what you fear. I say that you are wrong to fear this.
There are two possibilities that can follow from a decision to permit honest posting. One, we could learn that Buy-and-Hold can stand up to informed scrutiny. That would be a good thing for everyone concerned, would it not? Or, two, we could learn that Buy-and-Hold cannot stand up to informed scrutiny. Is that also not a good thing for everyone concerned? Is there any plus that comes from people continuing to believe in Buy-and-Hold if it really does not work? I sure am not able to see one.
We are living through a transition time, Hello World. There was a time when the evidence really did support Buy-and-Hold, when Buy-and-Hold was a big step forward. Then new evidence came in showing that Buy-and-Hold can never work in the real world for the long-term investor. We need to get that word out to all investors (and to all the investing “experts” too!). There is no possible downside. Permitting honest and informed discussions of investing on the internet is a win/win/win/win.
You benefit from learning the realities of stock investing, Hello World. Just as I do. Just as John Bogle does. Just as every other investor alive on Planet Earth does. Your deep desire to “defend” Buy-and-Hold is rooted in emotion. Allowing this emotion to control you hurts you in the end.
I am telling it the way it is, Hello World. You need to try to let this in. I’m sure of it!
I am not your enemy. I am your friend.
Rob