Set forth below is the text of a comment that I recently posted to another blog entry at this site:
“I think it would be fair to say that there is less personal integrity in the investing advice field today than there is in any other line of endeavor that could be named. ”
Fortune telling? Bank robbery? Child porn? Slave trading? Murder for hire? Embezzlement?
Fortune telling is not nearly as bad. Most people know to be skeptical of fortune tellers. Fortune telling is an innocent game compared to the investing advice field in the Buy-and-Hold Era.
Far fewer dollars are lost to bank robbery than to the continued promotion of long-discredited investing strategies. The direct losses resulting from Buy-and-Hold are $12 trillion. The total losses (both direct and indirect) exceed $20 trillion. The losses from bank robbery are not even remotely in the same neighborhood.
Child porn and slave trading and murder for hire are far, far, far worse for the people touched by them. But these horrors are not widespread enough to cause a loss of confidence in our political system. Following the 2008 crash, we saw political frictions on both the left (The Occupy Wall Street Movement) and the right (The Tea Party Movement). The next crash will greatly exacerbate this problem. Employers no longer provide for the retirements of their employees. We have moved the responsibility for the financing of workers’ retirements to the workers themselves. When we did that, we took on a responsibility to open up some means for the millions of middle-class workers affected to access honest and accurate reports re what the peer-reviewed research in this field reveals. Our system of government cannot retain the respect of the people unless we find some way to open the internet to honest discussion of safe withdrawal rates and scores of other critically important investment-related topics.
Embezzlement is akin to bank robbery. Obvious bad stuff. But not as bad as financial fraud precisely BECAUSE it is so obvious. Everyone opposes embezzlement. We are united in the view that we must work to stop it when we discover it. We cannot say the same about the continued promotion of Buy-and-Hold strategies for 33 years after they have been 100 percent discredited by the peer-reviewed research. We have highly revered people like my good friend Jack Bogle promoting Buy-and-Hold TO THIS DAY. That’s corrosive to our economic and political systems in a way that embezzlement could never be. Many people will find it hard to retain confidence in capitalism and in our democratic republic when they discover their life savings gone because of the lies about the peer-reviewed research that the Buy-and-Holders continued telling after the peer-reviewed research showed that there is precisely zero chance that this “strategy” could ever work for a single long-term investor.
I stand by my statement, Anonymous. This isn’t a case of one or two bad apples being discovered. The 12-year cover-up (it’s 33 years if you go back to when Shiller published his “revolutionary” [his word] research) couldn’t happen without support or tolerance of it from the journalism field. It couldn’t happen without support or tolerance from personal finance and political bloggers. It couldn’t happen without support or tolerance from academic researchers. It couldn’t happen without support or tolerance from economists. It couldn’t happen without support or tolerance from policymakers.
It’s bad.
The good news here is 50 times more good than the bad news here is bad. We now know how to reduce the risk of stock investing by nearly 70 percent while increasing long-term returns by enough to help investors retire five to ten years sooner. It’s important that we not lose sight of the fact that the economic and political system that failed us in permitting the continued and fraudulent promotion of Buy-and-Hold for 33 years after it was 100 percent discredited by the peer-reviewed research ALSO pointed the way to the biggest advance in the history of personal finance. This is overall a HUGELY positive story.
Still, the bad stuff is bad enough to make a lot of us uncomfortable confronting it. That’s the answer to the question you frequently ask as to whether there is some sort of “conspiracy” responsible for the 12-year (or 33-year) cover-up. The “conspiracy” is our human nature. We like to think well of others. We don’t like to call people out on their acts of financial fraud, especially well-respected and widely loved figures like Old Saint Jack. So we have let things slip and slip and slip and thereby pulled the trap tighter and tighter and tighter on Old Saint Jack and on all of our other Buy-and-Hold friends.
It’s a story that is incredibly bad and amazingly good at the same time.
That’s my sincere take, in any event.
Rob
Anonymous says
“bank robbery… not even remotely in the same neighborhood [as investing little each month, regularly, for years.]. Child porn and slave trading and murder… not widespread enough [to compare to committing the sin of passive Buy-n-hold]. Embezzlement… not as bad [as regular automatic 401(k) participation]. I stand by my statement. It’s bad. The economic and political system that failed us in permitting the continued and fraudulent promotion of Buy-and-Hold for 33 years after it was 100 percent discredited…”
Wow.
Rob Bennett: Always amusing.
Rob says
There are millions of people who are unemployed today because of the economic crisis brought on by the promotion of Buy-and-Hold strategies.
There are millions on the path to suffering failed retirements, one of the worst life setbacks imaginable.
There are hundreds of thousands of entrepreneurs who have seen their businesses fail in the economic crisis, businesses that they spent a lifetime of effort establishing and building.
There has never in the history of personal finance been an idea that caused as much human misery as the “idea” that price discipline is not required when buying stocks.
And it’s not just those of us who are familiar with the last 34 years of peer-reviewed research who think that. The Wall Street Con Men think that. You Goons think that. If you didn’t think that you have caused vast amounts of human misery, you wouldn’t fight so hard. You fight because you cannot stand the pain associated with acknowledging what you have done.
I care about the millions of middle-class people whose lives have been destroyed. I ALSO care about the Wall Street Con Men. I ALSO care about you Goons.
We adopted the laws against financial fraud for a good reason. Those laws need to be enforced in a charitable but yet also in a reasonable way.
That’s my sincere take re these terribly important matters in any event, Anonymous.
We’ll see how things go.
I naturally wish you all the best things that can happen to a person in this lifetime.
Rob
Anonymous says
“Far fewer dollars are lost to bank robbery than to the continued promotion of long-discredited investing strategies. The direct losses resulting from Buy-and-Hold are $12 trillion. The total losses (both direct and indirect) exceed $20 trillion.”
And you proof sources for this information is where?
Rob says
A good number of years back, I asked John Walter Russell to calculate the dollar amount of overvaluation in January 2000 (the high point of the bubble) using the figures for total market capitalization. The market was overpriced by a factor of three at the time; the fair-value P/E10 is 15 and the P/E10 at the top of the bubble was 44. This calculation showed mispricing of $12 trillion.
If the market were to return to fair-value levels (it always does), we were looking to experience losses of $12 trillion. Those are the direct losses attributable to the promotion of Buy-and-Hold strategies. If we permitted honest posting on the last 34 years of peer-reviewed research, we never could experience overvaluation. So we never would have experienced those losses.
There are several indirect effects as well.
One is that much of the money that investors “earned” via the bull market (which the Buy-and-Holders were telling them was real) was invested in real estate, causing a secondary bubble there. The real estate bubble caused about $4 trillion in overvaluation. That brings the total overvaluation to $16 trillion.
We never stop at fair value. Emotional extremes beget emotional extremes. Irrational Exuberance leads to Irrational Depression. There has never been a time in U.S. history when the secular bear created by a secular bull did not take us down to a P/E10 level of 8 or lower, half of fair value. That drop will cost us another $4 billion, bringing the total overvaluation to $20 trillion.
The Congress enacted an economic recovery bill in 2009 in response to the onset of the Buy-and-Hold Crisis. That cost us several more trillion dollars, bringing the total losses up to about $22 trillion.
The Federal Reserve has put several trillion into the stock market since then in an effort to keep the collapse from accelerating, bringing the total losses to somewhere in the neighborhood of $24 trillion.
In contrast, the entire Federal debt (comprised of all of the annual budget deficits going back to the days of George Washington) is only $18 trillion. The losses that we need to cover as a result of the continued promotion of Buy-and-Hold “strategies” for 34 years after the peer-reviewed research was published showing that there is precisely zero chance that a pure Get Rich Quick strategy could ever work for even a single long-term investor either here or in any other solar system is $6 trillion more than the entire Federal debt.
Buy-and-Hold is bad stuff, Anonymous.
Truly bad stuff.
The absolute worst for humans and other living things.
Hence, the great emotional pain you evidence in every comment that you post to this site.
We all need to pull together and persuade our good friend Jack Bogle to walk to the front of a big room and to say the words “I” and “Was” and “Wrong” and thereby to take us to the other side of The Big Black Mountain, where investing risk is reduced by 70 percent and where we all can realistically expect to be able to retire five to ten years earlier than we ever imagined possible in the Buy-and-Hold Era.
Rob