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Those are super comments. Your response has brought a nice measure of cheer to my Saturday morning.

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There was a fellow who reported on the Madoff fraud to the SEC several years before it was widely exposed. He had no inside information. He just did some mathematical calculations and was able to prove that the fund could not possibly be legitimate. The SEC ignored him.

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That’s my situation re this much bigger matter. The Buy-and-Hold idea has been under intellectual challenge for over 30 years. Shiller published the research that discredited it in 1981. But, as you say, there is always opposition to counter-conventional-wisdom thinking. Shiller’s findings are truly revolutionary. They change everything we once thought we knew about stock investing. They change things in a very positive way. Still, they upset the applecart. So they have been resisted with great strength.

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As you observe, that’s unfortunate but also a bit of an historical norm. The element that adds a nasty edge to this story is the rise of the internet as a powerful new communications medium. I am not an investing expert. I am a journalist. I built a hugely successful discussion board on early retirement back in early 2000. Since I had used Shiller’s ideas in putting together my own plan for early retirement, I shared what I knew with my fellow community members. I received a very positive response from a large number of people (but a minority of the board population). But another group felt intensely threatened by what I said. There is a mountain of intellectual support for Shiller’s ideas but there was a bigger mountain of popularity for the conventional ideas in May 2002, when I advanced the post that set off the explosion. The defensive group had both me and discussion of the topic I raised banned.

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They didn’t stop there. They saw me as a threat. So they made it a policy to follow me everywhere I went on the internet and to post abusively at all these other places until the site owner agreed to ban me. Since they are an organized group willing to engage in exceedingly abusive tactics if necessary, most ordinary people are afraid of them. So the ordinary people always eventually back down, word that the goons have prevailed once again spreads around the internet, and it becomes easier for them to prevail at the next place.

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Please understand that these people really do “believe” in the ideas they are pushing. I put the word “believe” in quote marks because they obviously do not have enough confidence in them to engage in civil discussion of them. But they “believe” in the sense that they follow the ideas themselves. This is also so of the experts in the field who promote the ideas. The experts are of course aware of the 30 years of academic research discrediting the conventional ideas. But they suffer from cognitive dissonance. They cannot bear to accept that they have been giving bad advice for so many years. They biggest scandal here is that the experts (some of the biggest names in the field) tolerate the insanely abusive practices (including death threats and threats to get researchers fired from their jobs) of the internet goons.

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The only explanation I can offer is that the experts just do not see any practical alternative. The situation is akin to what happened with Joe Paterno, the football coach at Penn State where a child molester was being protected for many years. People knew that bad stuff was going on. One woman was fired from the university because she investigated it. But people also loved Paterno and convinced themselves that things just couldn’t be as they appeared. It was a similar story with Lance Armstrong, the bicycle racer who recently lost all his medals because he was using performance enhancing drugs. Armstrong sued people who told the truth about him and got away with it for years because, even though just about everyone knew he was taking drugs, people understood that it was dangerous to give public voice to what everyone knew.

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The particular thing that added so much fuel to the investing controversy is the openness of the internet. Researchers in the field of course know about the challenges to Buy-and-Hold (the academic construct that is under challenge is called “The Efficient Market Theory”). They also know to keep their mouths shut. I am just some guy who figured out how to get stuff posted on the internet. So I didn’t know that. I posted about Shiller’s findings not knowing that I was doing anything “wrong” and hundreds of my fellow community members offered effusive praise for my work not knowing that I was doing anything wrong. One of these people spent eight years of his life helping me develop calculators that help people put Shiller’s ideas to practical use in ways that were not possible before we developed these tools. My friend (John Walter Russell) and I changed the history of investing. I think it is fair for me to say that given the words of praise I have won from many of the biggest names in the field that are posted at the “People Are Talking” section of my blog.

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But even the people who offered this praise don’t let me post at their sites! They know that they will be destroyed if they do. Also, they will lose readers. Most people still believe in Buy-and-Hold and will continue to believe until there is a public discussion of the flaws. But, if all the site owners concern themselves with is the popularity of their sites, we won’t see that discussion until the idea becomes less popular. Which means we won’t hear the discussion of why Buy-and-Hold cannot work until we see another price crash, at which point the losses will already have been realized.

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The truly frightening part of this is that Shiller’s model posits that it is these stock crashes that cause economic crises. When prices crash, millions of people lose wealth. So they spend less. And the economy contracts. Another big contraction could put us in the Second Great Depression. This is an important story.

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Wade Pfau came into this by reading my posts at a discussion board. He was excited by the research possibilities. So he contacted me and we worked together for 16 months. He did get his work published at a journal he describes as of acceptable but not stellar quality. He understands how important the research is and was disappointed that it was not published in a top-line journal. He was worried about the threats to get him fired from his job. I know because he told me so. But that is not all he was worried about. He was also concerned that there were a lot of people who did not like hearing what he was saying in his research. Accepting Shiller’s ideas requires people to accept that their portfolios are not worth what they today believe them to be worth. That’s hard medicine for people already worried about their retirements. I believe that Wade was also concerned that the big names in the field were not sticking up for him when he came under attack. He felt isolated. I think that’s how most people who learn about these matters feel.

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My aim is to get a discussion launched. The bad in this attracts attention because of its sensational nature. I DO NOT WRITE ABOUT IT FOR THAT REASON. I write about the bad stuff because there is no way for people to make sense of the story without knowing about that stuff. The good in this story is ten times more good than the bad stuff is bad. Shiller showed us how to reduce the risk of stock investing by 70 percent. I want people to learn about that. When people learn about that, we will become a wealthier people (capital will be better allocated than it is today) and we will recover from our economic crisis. These advances help everyone!. It’s all good stuff. We just have to get over this wall of defensiveness and fear of the new. As a journalist, it is hard for me to accept that there is not some way for me to help us pull that off, especially given that everything i say is documented on the internet (with time stamps and all this sort of thing).

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The people who promoted Buy-and-Hold are good and smart people. But they are today frightened and defensive people. The internet scares them because they have been covering this stuff up for years and this open medium threatens to expose them and it’s not too hard to imagine exposure leading to hundreds of billions of dollars in lawsuits. It’s a big mess! But fixing the mess promises to help us advance as a society in a very important way. The intimidation tactics are part of the story because they explain why people are learning about this from me, someone who did not go to investing school or manage a fund. The people who went to investing school and who manage funds don’t feel free to talk openly about this. So the only way it could come out is through someone like me. I feel that I need to tell about the intimidation tactics to help people make sense of things. I wish that they would not be the focus because discussion of them scares lots of people away. But I cannot see a way to tell the story without telling that side of things.

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Whew!

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I am grateful for your kind offer to contact Wade. I don’t think it would help. I agree that he should contact the police (I have done this) but he very much does not want to go down that road today. He wants to be accepted by all his peers and most of his peers today are people who do not want to see Buy-and-Hold challenged in an effective way. I of course understand that you are not in a position to join a cause. I didn’t as a matter of intent elect to join this one myself! I was sort of pushed into it. The only thing I would ask is that, if there is anyone you know of who you think might benefit from knowing about this, that you spread the word. For example, the best thing would be if a reporter from a big-name publication wrote up this entire story. We have a saying in the journalism field that exposure is a disinfectant. As word gets out about this and people see that those of us who talk openly about it are not being destroyed, more and more people will feel safe coming forward. Once we build the “cause” (a working economy!) to a certain size, things will reach a tipping point and things will just naturally grow and grow on their own. We already have enough people with an interest in the issue for these things to happen. We just need to help them to feel safe enough to give voice to their questions and thoughts and concerns.

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Thanks for listening. You are a kind and intelligent and fair-minded person. You have made a difference. I wish you all good things.

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Please write back if any of this does not make sense and you would like to understand better. But please know that I fully understand if you conclude that you have done all that you are able to do. If that’s the case, please just keep me in your thoughts. I am an optimist. I believe that things have been turning in the right direction in recent years. We just need to see one more devastating stock crash! (That’s a joke, kinda, sorta.)

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Rob