“Throw Away Price Discipline and You Make a Market Dysfunctional. Throw Away Price Discipline and You Force a Market to Crash (the Core Purpose of a Market Is To Get Prices Right and, If You Throw Away Price Discipline, the Only Possible Way That the Market Can Achieve That Goal Is To Crash Prices).”

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

You can’t just make up accusations. You need proof and the only death threats that so have seen have come from you. I am always willing to speak out about someone making threats or being abusive, but you have never offered any direct proof. To the opposite, so have seen direct proof in which you misrepresented comments people have made, leading to false and slanderous statements.

Now if you want to show me or anyone actual comments backing up your claims, so will be first in line to condemn those comments. Lack of support then means we can only conclude you have been lying.

The ball is in your court.

The proof is in the comments, Anonymous. You look at a comment and you ask yourself “Is that the comment of a person who is trying to learn or is that the comment of a person who is trying to suppress learning?”

As a nation, we have been suppressing learning for 38 years now. If valuations affect long-term returns, as Shiller’s research shows, there is zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor. If valuations affect long-term returns, then an investor must adjust his stock allocation in response to big price swings to keep his risk profile roughly constant. If valuations affect long-term returns and short-term timing doesn’t work, then the only way that an investor can practice price discipline when buying stocks is to adjust his stock allocation in response to big price swings (that is, to practice long-term timing). Price discipline is what makes markets work. Throw away price discipline and you make a market dysfunctional. Throw away price discipline and you force a market to crash (the core purpose of a market is to get prices right and, if you throw away price discipline, the only possible way that the market can achieve that goal is to crash prices).

Any person who cares to can see thousands and thousands and thousands of comments at this site in which Buy-and-Holders reveal a desire to suppress learning rather than to learn. And that’s so at every other investing site as well to a lesser extent (it’s to a lesser extend because only a tiny number of the conversations are about Shiller’s research and so there is much less suppression in evidence — but the discussions that we all need to have are still not taking place). We need to have these discussions so that we can learn what the last 38 years of peer-reviewed research is trying to teach us and we are not having them. We are killing ourselves.

Now —

Will that change with a price crash of 50 percent or more?

I believe that it will change. But we are going to have to watch it play out to know for certain. If we were all thinking clearly, there never would have been any suppression of discussion of Shiller’s “revolutionary” (his word) research findings in the first place. As a society, we very, very, very, very much want Buy-and-Hold to remain the dominant model for understanding how stock investing works. If Buy-and-Hold fails, that means that we have been giving bad investment advice in thousands of books and podcasts and calculators for close to four decades now. We have caused very serious harm to millions of investors. We have caused hundreds of thousands of businesses to fail (trillions of dollars of spending power leave the economy when stock prices crash and that means that consumers must cut back on their purchases of goods and services). Millions of workers lose their jobs when hundreds of thousands of businesses go under. It’s always hard to work up the courage to say the words “I” and “Was” and “Wrong.” In this case it is positively devastating.

But, if Shiller’s Nobel-prize-winning research is legitimate research, we don’t have any choice. We have put the matter off and put the matter off again and put the matter off again for 38 years now. But a 50 percent price crash that remains in place for a significant amount of time will do as much damage as the 2008 economic crisis or more. The damage that we will be bringing on ourselves will be too great for us to continue putting off the need to launch a national debate on Shiller’s amazing research findings. The price of continuing to suppress discussion will have grown too high.

Or so Rob Bennett believes in any event, you know?

My job is to make the transition from Buy-and-Hold to Valuation-Informed Indexing as painless as possible. It cannot be 100 percent painless. Not after 38 years of suppression of discussion of these terribly important matters. But there are different paths available to us. We can elect to tear ourselves apart over the mistakes of the past. Or we can acknowledge our good fortune in now having 38 years of peer-reviewed research available to us that shows us for the first time in history how stock investing works in the real world and pull together and achieve great advances.

I favor the latter path. Which means that is is my job to do everything in my power to help people see the thousands of ways in which the Buy-and-Holders have helped us over the years while also insisting that we bring the suppression of honest posting to a full and complete stop. It is the suppression of honest posting that has been killing us for a long time now. We need to stop destroying ourselves. We need to appreciate our good fortune and bring this crazy abusive stuff to a full and complete stop.

The abusive stuff is not even a tiny bit hard to see. It is omni-present everywhere there are honest people who try to engage in discussions of the far-reaching implications of Shiller’s research finding that valuations affect long-term returns. The thing that has been lacking so far is an insistence on the part of all of us that our laws and our social norms saying that honest posting on the peer-reviewed research in this field be permitted everywhere be recognized. Will a larger number of us start insisting on that after we have experienced the pain that we will all feel when prices crash? I sure think so. I think that the pain that we will all experience will break us out of our complacency and we will all pull together to survive the economic crisis that we have brought on with our relentless promotion of the Buy-and-Hold concept.

I am optimistic. I believe that our future looks good. I believe that we are going to experience a mountain of pain. But I believe that there are six mountains of good stuff on the other side of that one mountain of pain. We just have to work up the fortitude to do what it takes to get us there. I am scared. I am not saying that I do not have concerns. But I remain optimistic re the long term. I have seen too many brave and intelligent and kind people try to help us out over these past 17 years not to be optimistic re what we will see after the next crash.

The efforts to suppress learning rather than to engage in it are there for the eyes of any open-minded investor to see in thousands and thousands of posts put to this site. Will more of us open our minds to the possibility that valuations really do affect long-term returns in the days following the next price crash? I think it is a lock. But I am one of those darn flawed humans. I never thought that it would take 17 years. I thought that it would take two or three days. So it is certainly at least theoretically possible that I am wrong. Time will tell the tale.

I wish you all the best that this life has to offer a person. Flawed human or not, I know with 100 percent certainty that that one is so. Are you okay with showing a little patience waiting for the other one to play out? It is my sincere personal assessment that none of us has any other realistic choice.

My best wishes to you.

Rob