Set forth below is the text of a comment that I recently put to another blog entry at this site:
Rob, do you think the news about the US handing control of ICANN to the international community will be good for honest posting?
I know next to nothing about it. So it’s not right for me to venture an opinion. The tiny bit I have read about it has been negative.
The one thing that I can say is that it is not procedural issues that are the problem. The published rules at the Motley Fool site were perfect at the time I was posting there. The same thing was true at Morningstar. We don’t need new rules. We need better enforcement of existing rules.
We have lots of positives. The people working in this field are smart and hard-working and good. We all want the same thing. The research is rock-solid. There’s tons of money to be made advocating a true research-based approach. That provides a lot of incentive for spreading the word.
The way that I often put it is to say that we are on the one-yard line. We need one front-page article in the New York Times. Or one big blogger who makes this a cause. Or one venture capitalist who gets behind this. That’s all it would take to swing the door open at this point. Once it became clear to people that it is safe to post honestly, we will see hundreds of people doing it and then thousands not too long after. We are very close. And yet of course in another sense we remain today very far away from where we need to be.
The biggest problem we face is that this is so darn important. Intuitively, you would think that people would focus on the most important matters. That’s true to a point. But there comes a point at which something is too important to deal with. It’s like the thing where they say that a business is too big to fail. This mistake is a mistake too big too fix. It would mean rewriting every textbook in the field. People look at that and say “no, we cannot go there.” They overlook the fact that it means being able to bring the economic crisis to an end and being able to reduce the risk of stock investing by 70 percent and being able to help people to retire 5 to 10 years sooner and all this other wonderful stuff. They notice that it means rewriting all the textbooks and they conclude that it is just too big an advance to accept.
The other one is that people care. The Buy-and-Hold Pioneers were trying to do something good. I cannot see into their minds. But all the evidence I have seen points in that direction. So people say, “oh, don’t mention their mistakes, their hearts were in the right place.” I see it just the other way. I say “their hearts are in the right place, so they obviously don’t want to hurt millions of people, make sure that they get those mistakes fixed fast!” But lots of people feel strongly today that that’s not the way to go. There’s a line that you cannot cross. You can say “I do things differently.” But you cannot say “these good people got something wrong and they are hurting lots of people as a result.” People close their minds when you say that.
I guess what I am saying here is that it is not procedural rules that we need to change. The procedural rules that exist are just fine. We need to change people’s hearts. We don’t have to persuade people to want to be able to invest effectively. We of course already have that. We need to figure out some way to get people to come to terms with mistakes made in the past.
A big cause of our problems is the unfortunate reality that in the investing advice field, you can’t just put forward ideas as something to think about. People have to invest. They have to take Choice A or Choice B. And people don’t want to invest their retirement money according to something that you claim has a 50 percent chance of working or a 30 percent chance of working or a 70 percent chance of working. They want 100 percent certainty. They are scared of losing their retirement money and so they very much want to hear that you are sure. People in this field pick up on that and they try to respond to it by expressing a level of confidence that is not justified. And then of course it becomes hard for them to back away from what they have said when it comes out that their confidence in discredited ideas was very much misplaced.
The reality is that there are two research-based models for understanding how stock investing works. Buy-and-Hold is dominant. It is probably supported by 90 percent of investors. I obviously believe that Valuation-Informed Indexing is superior. But it is today supported by perhaps 10 percent of investors. How do we increase support? We have to talk about the new ideas. But these ideas are very threatening to the 90 percent following the other model. The ideas are too powerful. If they were less compelling, the Buy-and-Holders could just laugh them off. But there is rock-solid support in the research and the stakes are as high as they can be and so the Buy-and-Holders feel that they must shut down the learning process at all costs.
That’s the problem that we have to solve, Sensible. We need to get the Buy-and-Holders to calm down enough to listen to the other side of the story. If we do that, we will win them over. Then there will be no conflict. But the pain that the Buy-and-Holders feel when they hear that the investing strategies they have been following for years are wrong-headed is very real. I need to figure out how to make people feel less pain long enough to realize how great the benefits are that follow from adopting a true research-based approach. I obviously spend every day trying to figure that one out. If we knew the answer to that one, we could turn the key and there would be zero conflict from that point forward.
I am not a person who likes conflict, Sensible. I am probably the most conflict-averse person you are ever going to meet. PeteyPerson nailed it when he described me as a “teddy-bear-type poster” in the days before May 13, 2002. But conflict is part of this fallen world we live in, you know? I like the analogy that I make to the Civil Rights days. There were racists in the pre-Civil Rights days. But the ugly forms of racism were never the real problem. The real problem was that lots of people who did not like racism one little bit feared change. A change was being proposed that was very, very, very positive and people saw that on one level of consciousness and yet on another level of consciousness they feared this big change that was being proposed. That’s where we stand today re the Social Taboo that blocks us from talking about the realities of stock investing as revealed by the last 33 years of peer-reviewed academic research in this field. We need to work up the courage to make the change needed to enrich our lives in hundreds of amazingly positive ways.
The process rules are already in our favor. So trying to come up with even better process rules won’t make the difference. We need to change human hearts. We need people to see that change is not bad here, change is a very, very, very good thing in this context. You can’t change people’s hearts without talking to them, however. We are stuck in a Catch-22 because the thing we need to solve the problem is civil and reasoned discussion and that’s the very thing that the Buy-and-Holders most fear because they understand that the research-based case for Valuation-Informed Indexing is so strong that “their side” cannot possibly prevail if civil and reasoned discussion is permitted. So for a time we are stuck.
We figured out the Civil Rights thing, right? Lots of people got hurt. Lots of blood was shed. That part terrifies me. I see that happening here. That’s why I talk about the prison sentences whenever an opportunity presents itself. The prison sentences are the dark side of all this. I feel a responsibility to pull things in a positive direction and I don’t see how we get there by ignoring felonies. Each time we turn our heads to that sort of thing we make things worse. We give people who are afraid of change an out. We’re telling them “you don’t need to follow the laws of the country you live in, we will make an exception for you because of the emotional pain you feel over accepting the need for change here.” That’s deeply wrong, tragically wrong. It’s cowardice and selfish. We need to apply the same standards of personal integrity to the investing advice field that today apply in every other field of human endeavor. So we need to point out when people sink below minimal ethical standards.
The phrase that I use about Jack Bogle is that, after the next crash, his heart will melt. I think that that is where we are going to see the change. Millions of people are suffering today. But to a lot of us those people are abstractions. We hear that millions are unemployed and we think “oh, that’s someone else’s problem, you cannot put that one on me just because I make it a daily practice to post abusively over the 12-year cover-up of the errors in the Old School safe withdrawal rate studies.” It gets harder to do that when we are in the Second Great Depression, when we are all seeing photographs of the human misery we have caused in the newspapers every morning.
The pain has to get worse for us to work up the courage to do what is needed to make the pain go away. That’s a hard way of putting it but a true way too, I believe. Sometimes there are things in life that we know we have to do but for some reason we don’t want to give up our old ways. Maybe there is a diabetic who needs to give up drinking beer or his leg is going to be cut off. He ignores the warnings because he has been drinking beer his entire life and he cannot accept that he needs to give it up. Maybe he has a friend with the same problem and he visits the friend in the hospital after his leg has been cut off. Now he cries. Now he sees that he really must make this change that he has resisted for so long. All of a sudden, there is a total change in the guy’s attitude. Now he is capable of accepting reality and doing what he needs to do to save his own leg.
We don’t need new procedural rules. We need a change in human hearts. My guess is that it is the next price crash that will help melt human hearts. I hate it that it has come to that but it is my perception today that that is where things stand. We will see.
My best and warmest wishes to you, Sensible.
Rob
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