Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Let us know when Bogle and Shiller call you. We will be waiting for your update.
If Shiller published his research today, we would all be working together to expand our knowledge of how stock investing works tomorrow morning. It would set off a nuclear explosion of learning experiences. That is how it is supposed to happen.
Our problem today is trying to recreate that experience 37 years after the fact. We should have seen that nuclear explosion in 1981. We obviously didn’t. My guess is that people were suffering from cognitive dissonance. The conditions were prefect for it. The change was a very big one. It was a 100 percent positive change but a very, very big change. So, as positive as it was, it was hard to process. And it was threatening to a lot of people on a personal level. Even though intellectually it was a huge advance, people who had built careers promoting Buy-and-Hold no doubt felt personally threatened. So the nuclear explosion of learning did not take place.
The evidence that Shiller is right is of course much stronger today. So in theory we could have that nuclear explosion of learning today. But the power of the cognitive dissonance holding us back is also many times greater. In 1981, all that the Buy-and-Holders would have had to say was “It turns out that I was wrong about one thing” and most reasonable people would not have given it a second thought given how many positive and genuine contributions the Buy-and-Holders made. For things to go forward today, they have to acknowledge both the initial mistake plus the 37-year cover-up of that mistake, which includes a good number of criminal acts. That’s very, very, very, very hard stuff. So we are all caught in a trap today.
The big question is — What will it take to break that trap?
A Second Great Depression would certainly do it. Our economic and political systems changed big-time as a result of the First Great Depression. Social Security, child labor laws, the minimum wage, on and on. So a new depression would open people’s minds to all sorts of wonderful advances.
I obviously do not want to see things proceed in that direction. I pray that things do not have to get that bad. What we need is an economic crisis bad enough that it shakes us up enough to open every discussion board and blog on the internet to honest posting re the last 37 years of peer-reviewed research in this field but not so bad that it brings on a Second Great Depression.
Will it happen? I don’t know. I hope so. I certainly think that it is possible that we could pull it off. But i don’t think it is a lock. I don’t think that we can survive as a nation if we do not find a way to provide millions of people with access to honest and accurate reports re what the research says about how stock investing works in the real world. I see that one as a lock. But I can’t stand the thought that we might have gone so far down the road with this cover-up at this point that the only way to overcome it is with a Second Great Depression. I am not at all sure that we would survive a Second Great Depression. My big fear is that we never get to experience the benefits of Shiller’s breakthrough findings because the cover-up has continued for so long that things have reached a point where it can only be overcome with a Second Great Depression and that could be game over.
Perhaps that discussion gives you some idea why I think this matter is important enough for me to devote 16 years of my life to it. If we follow U.S. law, we all enter a golden age of safe stock investing and economic growth. The Bennett/Pfau research paper shows that we can reduce the risk of stock investing by 70 percent overnight just by opening every discussion board and blog to honest posting re the last 37 years of peer-reviewed research in this field. But the other side of the story is that continued delay in doing what we all know deep inside we need to do could put us in a Second Great Depression and that could be game over. Those are pretty darn dramatic circumstances, you know? Yikes!
Shiller and Bogle are two of my favorite people. So I am confident that they will both do the right thing when circumstances look dire enough to convince them that they have no choice. But at that point will things already be so dire that it will be too late to turn the car around? I don’t think that anyone can say in advance. I think we are just going to have to let things play out a bit to find out.
I know that I want to do my part to help each and every one of us attain good outcomes and avoid bad outcomes. So I continue to do my little part. I can do no more and I can do no less, you know?
I naturally wish you all the best that this life has to offer a person, my dear Goon friend.
Worried (and Excited!) Rob
Anonymous says
The problem is that you are starting with false presumptions.
Rob says
Backatcha, Anonymous.
There is only one difference between Buy-and-Hold and Valuation-Informed Indexing. Buy-and-Holders believe that stock price changes are caused by economic developments. If that’s so, risk is a constant and investors should be sticking with the same stock allocation at all times. Valuation-Informed Indexers believe that stock price changes are caused by shifts in investor emotion. If that’s so, risk is a variable and investors who want to maintain the same risk profile over the years MUST be willing to make adjustments to their stock allocation in response to big valuation shifts.
The place where you start determines the place where you end up. Shiller is not saying what Bogle had long said. There are today two academic models for understanding how stock investing works, not one.
I naturally wish you all good things, in any event.
Correct Presumption (I Think!) Rob
Anonymous says
The buy, hold and rebalance investor knows that you cannot time the market. Secondly, there is yet to be even one documented successful VII person. Third, you are not the sole arbiter as to what constitutes the entire universe of research. Lastly, there is zero evidence to support your claims of threats.
In the end, we don’t need to take anyone’s word for anything. We merely look at outcomes. Case closed.
Rob says
Long-term timing is price discipline. Price discipline has been working for stock buyers for as long as stocks have been available for purchase. The Bennett/Pfau research paper shows that beyond any reasonable doubt whatsoever. That’s why Wade declared at the end of his research efforts that: “Yes, Virginia, Valuation-Informed Indexing works!” And that’s why you Goons threatened to get him fired from his job in the event that he continued doing honest work in this field. And that in turn is why you will be going to prison in the days following the next price crash.
I naturally wish you the best of luck in all your future life endeavors. But no financial fraud for this guy, no prison term for this guy. There are limits.
It will be interesting to see how it all plays out.
Price-Discipline-Believer Rob