Set forth below is the text of a comment that I recently posted to another blog entry at this site:
In your mind, the people going to prison are those that had you banned from the various financial boards, correct?
The crime we are talking about is financial fraud, Anonymous. In a hyper-technical sense, anyone who has recommended a Buy-and-Hold strategy from 1981 forward is guilty of the crime. Yale Economics Professor Robert Shiller published peer-reviewed research in 1981 showing that valuations affect long-term returns. If valuations affect long-term returns, then there is zero chance that a Buy-and-Hold strategy (a strategy rooted in the idea that there is no need to change one’s stock allocation in response to big shifts in valuations) could ever work for even a single long-term investor.
I say that promoting Buy-and-Hold is financial fraud only in a hyper-technical sense because millions of good and smart people really do believe in it. I believed in Buy-and-Hold until the evening of August 27, 2002. John Walter Russell believed in Buy-and-Hold when he started working with me. Wade Pfau believed in Buy-and-Hold when he started working with me. You Goons follow Buy-and-Hold strategies yourselves. In ordinary circumstances, that would be pretty darn strong evidence that you believe in the strategies.
Shiller’s 1981 findings truly were “revolutionary” as he indicates in the sub-title of his book. People are not capable of integrating the implications of such findings into their thought processes in a day or a week or a month. We have as a society been struggling with this for three decades now. We understand intellectually that Shiller is right. But we “know” emotionally that Fama and Bogle are right. We recognize the importance of Shiller’s work. So we celebrate his book and award him a Nobel prize.
But his findings are painful to us because accepting them requires that we acknowledge that our most fundamental beliefs about how stock investing works are in error. So we suppress knowledge of what Shiller taught us. We ignore him while celebrating him. We bow our heads when his name comes up but we go right on following and endorsing the Buy-and-Hold strategies that we followed and endorsed in 1980, before Shiller had published the most important research ever published in this field. We act as if Shiller did not exist.
In short, we suffer from cognitive dissonance. When people cannot accept a truth, they suppress knowledge of it. We have as a people been suppressing knowledge of what Shiller showed to be so in 1981 for 33 years now.
Cognitive dissonance is not a crime. Financial fraud IS a crime. But cognitive dissonance to a large extent negates it. One element of the crime of financial fraud is bad intent. If someone advocates Buy-and-Hold with good intent, he is not guilty of the crime even though he has hurt people in very serious ways and even though there is 33 years of peer-reviewed research showing him why it was wrong for him to make the claims he made. An element of the crime is missing in such cases.
That’s not so in the cases of people who have advanced death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs. Those people are suffering from cognitive dissonance too. But they have evidenced bad intent in a way that cannot be excused by cognitive dissonance.
These people have not only gotten the investing question wrong. They have made it impossible for us as a society to ever get it right. In all other fields of human endeavor we correct mistakes by talking through new findings and different opinions. Gradually, we work our way to the truth. We cannot do this when the penalty for the “crime” of posting about the implications of the last 33 years of peer-reviewed research is career death.
Hundreds of academic researchers want to tell the truth about stock investing but do not feel safe doing so. Hundreds of investment advisors want to tell the truth but do not feel safe doing so. Hundreds of journalists want to tell the truth but do not feel safe doing so. Hundreds of economists would like to tell the truth about the cause of the financial crisis but do not feel safe doing so.
The members of the Buy-and-Hold Mafia have gone beyond just giving bad investment advice. They have engaged in acts of intimidation and deception that have stopped thousands of people who know the truth about these matters from speaking up. Those acts of intimidation cannot be excused in the name of cognitive dissonance. Those acts of intimidation need to be prosecuted as acts of financial fraud.
I am not a prosecutor and I will not be serving on any juries. I am a journalist. It is my job to tell this story in as fair and complete a way as I possibly can tell it. It is for others to decide precisely who will go to prison and for what length of time. If I were to ignore the fact that crimes have been committed, I would not be doing my job as a journalist. If I were to ignore the fact that crimes have been committed, I would be participating in the cover-up myself. I would be putting myself at risk of going to prison. Um — No thanks.
I love my country. Part of my job is to move the focus of the discussion to the substantive matters as quickly as possible. That means getting the criminal questions addressed as soon as possible so that we can put the ugly procedural side of this behind us. Ducking the reality that serious crimes have been committed helps no one. The longer that side of things is ignored, the more financial misery is caused and the angrier people will be when they lose most of their retirement money in the next price crash. The sooner the prison sentences are announced, the fewer people there will be who will go to prison and the shorter their prison sentences will be. To fail to address the crimes that have been committed during the 12-year cover-up is not an act of charity but an act of cowardice.
That’s my sincere take re these terribly important matters, in any event, Anonymous. I hope that the words above help a little bit.
Rob
You are not a journalist. You do not report, everything you write is an opinion piece.
You are wrong, Laugh.
I am a journalist. I report facts.
I have put forward millions of words over the past 13 years. Every word that I have put forward is rooted in a simple fact that was proven beyond any reasonable doubt in the year 1981: Valuations affect long-term returns. That’s the most important fact ever established in this field. If that fact is true (and it is — there is zero evidence pointing in the other direction), all of the conventional investing advice (the advice rooted in the Buy-and-Hold Model) is a horror movie. If that fact is true (and it is), then the Buy-and-Holders are well on their way to bringing about the collapse of the U.S. economic system.
The Buy-and-Hold Pioneers did a wonderful thing in the early 1960s. They came up with the idea of rooting investment advice in something real, peer-reviewed academic research. That changed everything. When you root your advice in peer-reviewed academic research, investing advice is no longer just the product of marketing campaigns. From that day forward, investing advice no longer had to be just what sells, it could be what works.
The problem is that there was a critical bit of information not available to the researchers in the 1960s — the importance of distinguishing short-term timing from long-term timing. Price discipline can only be achieved with long-term timing and long-term timing can only be achieved with index funds, which were not available in 1965, when Fama published his famous research that has been cited millions of times as showing that “timing doesn’t work.”
It’s not even precisely correct to say that Fama was wrong to conclude that long-term timing doesn’t work. Fama didn’t know that long-term timing existed! So he didn’t check into it. Showing that Fama got it wrong is like fighting a ghost. It’s pretty darn hard to show that he got it wrong when he never even looked at the question.
He got it terribly, terribly, terribly wrong, to be sure. But not because he is some dope researcher who is not able to add or subtract properly. He got it terribly wrong because we were living in the investing dark ages in those days. There were no index funds in those days. So obviously there was no way for all of us to appreciate how important it is to always, always, always practice long-term timing (price discipline). When it became possible for someone to show how critical it is to always, always, always practice long-term timing (this was in the mid-70s, when Bogle founded Vanguard), someone did so (Shiller – in 1981).
The problem we have is not with the research. The research shows what works and has for 34 years now.
The problem we have is not with middle-class investors not wanting to know what works. We have seen over the past 13 years that there is a deep desire on the part of millions of middle-class investors to learn what really works. Those millions HATE the abusive tactics that have been employed by the Buy-and-Holders. They want to see you Goons placed in prison cells so that the vast majority of us will be freed to hold the civil and reasoned discussions that we all very, very much want and need to participate in. But that’s of course what U.S. law calls for. So there are no problems re this side of things not addressed in laws that are already on the books.
The problem we have is that the investing advice field is a field in which people make huge sums of money by promoting themselves as “experts.” Fama made his mistake in 1965 and an entire industry was built up to promote “strategies” that follow from that mistake in books and speeches and now web sites and all sorts of things. Shiller’s peer-reviewed research showed that the advice being advanced by the Buy-and-Holders was the most dangerous investing advice ever advanced in the history of Planet Earth. The Buy-and-Holders fought bitterly to protect their turf. And here we are 34 years later with lots of people on their way to prison cells in the not-too-distant future.
I don’t put forward opinions, Laugh. I put forward research-based strategies.
I don’t put forward strategies discredited by 34 years of peer-reviewed research. That would be financial fraud. I steer away from the smelly Buy-and-Hold garbage to the greatest extent possible.
I start with a belief that valuations affect long-term returns and then explore every issue that the Buy-and-Holders explored in earlier years and got terribly, terribly wrong because they failed to incorporate the peer-reviewed research published by a Nobel Prize winner in 1981 into their work. I correct the Buy-and-Holders. I do honest work, not Get Rich Quick garbage.
Is it just my opinion that valuations affect long-term returns? It is not. No more than it is a doctor’s opinion that smoking causes cancer. The tobacco companies once tried to get away with destroying our society in the way that the Buy-and-Holders continue to destroy it today. They too laughed at the research that threatened to shut down their massive con that smoking improves one’s health. The American people beat those con men. There are now warnings on every package of cigarettes sold telling people what the peer-reviewed research shows. We will have those warnings on every piece of Buy-and-Hold propaganda marketed to the American people in coming days. We will stand up to the Wall Street Con Men and defeat them. We must do so if our economic system is to survive. We will do what needs to be done.
Everything that I write is rooted in recognition of the most important fact ever discovered in this field — ALL investors must ALWAYS practice price discipline when buying stocks, it is always a terrible, terrible, terrible mistake to fail to do so.
It is possible that I got something wrong. Fama is a good and smart man. He got something wrong. If it could happen to him, it could happen to me. My aim is to report facts. But the humans of any given time-period don’t have access to every fact that ever will be known to us. It may be that a day will come when something new will replace Valuation-Informed Indexing, just as Valuation-Informed Indexing is in the process of replacing Buy-and-Hold today. If that’s what happens, I hope that I have the grace to applaud the advance.
But never have I engaged in deliberate deception. Never once have I said that the Greaney retirement study contains an adjustment for the valuation level that applies on the day that the retirement begins. Never once have I said that such an adjustment is not 100 percent requited to get the numbers even remotely right. Never once have I said that Greaney corrected his study within 24 hours of the moment at which he learned of the error he made. Never have I given two seconds of consideration to saying such things.
Never have I made use of intimidation tactics. When you have 34 years of peer-reviewed research and the laws of the United States on your side, you don’t feel any need to disgrace yourself in such ways.
I naturally wish you all good things, Laugh.
Rob
Had lots of people started doing in 1981 what I started doing on the morning of May 13, 2002, we would be living in a far better world today.
There was so much money to be “earned” by pushing a pure Get Rich Quick approach.
And the opposition to the discussion of the peer-reviewed research on the part of the Buy-and-Holders was so intense.
It’s a national tragedy.
Rob
Until you show the facts, it is merely opinions.
Robert Shiller has won the Nobel Prize in Economics.
He has shown the core fact (that valuations affect long-term returns) very effectively.
Now we need to as a society to work up the courage to demand enforcement of our laws against financial fraud.
Once you Goons are placed in prison cells, it’s all downhill sledding for all the rest of us. We all want the same thing. We all want to learn.
I am sure.
Rob
“There was so much money to be “earned” by pushing [Buy and Hold]
And what money is that, exactly, Rob?
Remember: Brokers make money on TRADES, not on grandmother bidding her time in a single mutual fund for 30 years!
They make money by giving investing advice, Anonymous. LOTS of money.
The most important advance ever achieved in the history of our growing knowledge of how stock investing works took place in 1981. An entire industry had been built up around the Buy-and-Hold “idea” by the time we learned that it is pure garbage. The people who pushed this stuff felt that it would hurt their reputations if they acknowledged making this mistake. So they lied about it. They covered up the mistake for 34 years while it destroyed millions of lives.
Now they just don’t want to go to prison. Bogle would tell the truth in 10 seconds today if he could do it without sending lots of his friends to prison. But how is he going to pull that off? We cannot go back in time. His Buy-and-Hold garbage has destroyed millions of lives. There has never been even the tiniest indication in the research that it could ever work for a single long-term investor. So what is he to do given the realities that apply today?
I have suggested that we pass an amnesty for those who promoted Buy-and-Hold strategies with good intent. The vast majority of Buy-and-Holders fall into that category. I promoted Buy-and-Hold myself in the days before Greaney’s death threats. So I think that enacting an amnesty would make all the sense in the world.
But how the heck do we get there?
Congress isn’t going to pass an amnesty until millions of people tell them that they want one.
And we are not going to have millions seeking an amnesty until we are all able to post honestly at every board and blog on the internet re the last 34 years of peer-reviewed research.
And once people see what the Buy-and-Holders have done over the past 13 years, they are obviously going to insist that those who have posted in “defense” of Mel Lindauer and John Greaney and Jack Bogle be sent to prison.
So we are back where we started, waiting for the next price crash to show people that we have no choice but to move forward with the announcement of those prison sentences for you Goons. The announcement of those prison sentences frees us all. Once the prison sentences are announced, there won’t be one person “defending” the smelly Buy-and-Hold garbage. I don’t think there’s anyone who has any questions re that one.
People in this field don’t make money only through trades, Anonymous. That’s another Buy-and-Hold Lie.
Why did Motley Fool ban honest posting re the last 34 years of peer-reviewed research at their site if the only way anyone makes money in this field is through trades? Motley Fool doesn’t make money through trades.
Buy-and-Hold creates trillions in Pretend Money through its encouragement of a pure Get Rich Quick approach. The market was overvalued to the tune of $12 trillion in 2000. Motley Fool was profiting from that overvaluation. They were acting like the nominal amounts reported on people’s retirement accounts was real. It made people happy to hear those lies. And people who are made happy by the lies told at a site return to that site and view that site’s advertisements and thereby put money in the pockets of the owners of the site.
I am not interested in making money that way. I don’t want to tell lies. I don’t want to destroy the lives of my friends by shoving the Buy-and-Hod garbage down their throats.
I advocate research-based strategies. No exceptions. I believe that there is money to be made in this field by advocating HONEST and REAL strategies. No Buy-and-Hold garbage. I expect to become one of the richest men in the United States by EXPOSING the Buy-and-Hold Con.
Do you see?
Rob
When grandma “bides her time” in a mutual fund, her risk profile is jumping all over the place. She is engaging in insanely risky behavior by failing to exercise price discipline. When she loses most of her life savings, she doesn’t understand. Why did the nice man pushing Buy-and-Hold lie to her?
That’s why we are in an economic crisis. That’s why there are today millions of people out of work. That’s why hundreds of thousands of entrepreneurs have seen their businesses fail in the Buy-and-Hold Crisis. That’s why there are millions of people on their way to experiencing failed retirements.
Do the Buy-and-Holders think that causing all this human misery is no big deal?
They do not.
If they thought that causing such massive human misery were no big deal, they would not be so ashamed of what they have done. If they thought that causing all this human misery were no big deal, we would never have seen a single death threat or a single demand for a single board banning or a single act of defamation or a single threat to get a single academic researcher fired from a single job.
The announcement of your prison sentence helps us all, Anonymous. That includes our Buy-and-Hold friends. Buy-and-Holders are people too. They WANT to be freed to do honest work again. They LONG to be freed to do honest work again. They DREAM of the day they will be freed to do honest work again.
I believe that the day that your prison sentence is announced will be declared a national holiday. It will be a Second Independence Day. Prior to 1981, we did not know how stock investing works. So there have always been millions of middle-class people who saved for years and then saw their savings washed away in the next Buy-and-Hold Crisis. Now we know. But now we cannot talk about how stock investing works because it hurts the feelings of the Buy-and-Holders too much for us to tell people about what the last 34 years of peer-reviewed research says.
That all ends with the announcement of your prison sentence. The good news here is 50 times more good than the bad news here is bad. All the good stuff starts happening on the day following the announcement of your prison sentence.
Prison sentences do not last forever. Yours will come to an end one day. You will one day be able to reap the benefits of the last 34 years of peer-reviewed research yourself. The sooner your prison sentence begins, the sooner that day will come for you. I am your best friend on the planet. You just don’t see it yet.
My best and warmest wishes to you and yours.
Rob
You are not a journalist. You even end your poorly written posts with:
“That’s my sincere take re these terribly important matters, in any event”
Journalists are not supposed to be giving ‘sincere’ ‘takes’.
I disagree with you, Laugh.
I believe that every word that I have put forward over the past 13 years is so.
But I also understand that there are hundreds of good and smart people saying something very different.
There’s a responsibility that arises from that combination of realities.
If I am right (and I believe that I am), then everything that my good friend Jack Bogle has ever said about how stock investing works is wrong.
That’s what I believe. But I do not believe that Jack is a bad man or a dumb man. So I have had to make sense of the reality that a man that I consider a hero has made a terrible mistake that has ruined millions of people’s lives. I sweated blood for several years trying to make sense of that one.
What I came up with is that every human is flawed. We all only offer our “takes” no matter how much we study an issue, no matter how much we care. When I say that my words are only my take, there is an implication that everyone else in this field is only offering his or her take as well. That’s all we humans ever can do.
Yes, journalists are only offering their takes. When Woodward and Bernstein said that Nixon was guilty of serious crimes, they were only offering their takes. They presented mountains of facts as evidence. But in the end all that a human can advance for public consideration is his or her take.
Ultimately,the members of your jury will offer their take. They will decide on the length of your prison sentence. I hope and believe that they will take their responsibilities seriously.One of their responsibilities is to view your behavior in the most charitable light possible.
I naturally wish you the best of luck in all your future life endeavors.
Rob