Mike Piper, author of the Oblivious Investor blog, wrote me an e-mail in response to Tuesday’s blog entry (“Mike Piper of Oblivious Investor Bans Discussion of Lindauer’s Campaign of Terror Against Diehards“). Reading the e-mail was a painful experience for me (you will understand why when you read the words of the e-mail, set forth below [Mike had given me permission to post his words here]). However, I am highly confident that Mike’s words are honest and well-intentioned and brave words. I sent him a response e-mail expressing my gratitude. I hope that we can all read his words, consider their significance and act constructively in response to them.

Hi Rob.

I believe that:

a) You’re a genuinely good guy, and
b) You believe deeply in the validity and importance of your message, and are doing what you can to spread it.

I can appreciate that.

It’s my respect for you that’s spurring me to write this email to honestly inform you about something I’m not sure you’re aware of.

I’ve had multiple people ask me in the last week why I continue to allow you to comment on the blog.

(Note: These are not the “goons” to whom you refer. These are real-life friends and family members of mine. I can assure you with 100% confidence that they read no other investing-related blogs or forums. So their thoughts have nothing to do with what has occurred elsewhere on the web. Also, these people do not work in the investment industry, and they themselves follow a myriad of investment strategies, so they have no vested interest in one investment strategy as opposed to another. As far as I can tell, these people are about as impartial as anyone could be.)

These people–good people–have described your comments as “spammy”, “obnoxious”, and “like the guy in a town hall meeting who won’t shut up about something everybody else doesn’t care about.”

Note: none of these people have voiced any issues or arguments with your message. They take issue with the way you’re attempting to spread it.

I think what’s happening here is that:

• To you, your comments are on-topic and essential whenever concepts such as asset allocation or expected return come up on the blog. That’s why you bring the topic up so frequently and with such fervor.
• To others–to whom the connection is not so clear–your comments come across quite differently.

I encourage you–for the sake of your own success–to take a look at your methods. I suspect that in some cases, perhaps your being banned from various sites has more to do with the manner in which you go about spreading your message than it has with the actual content of your message. I genuinely believe that you would reach more people if you scaled it down a level.

As to my own website, my goal is to both help investors succeed and make the site a place that people enjoy visiting. I’m requesting that you limit your comments to 2 per thread and to ask yourself whether other readers would see a comment as “on topic” before you post it. If you call that “putting marketing considerations above his desire to inform his readers what works in stock investing” then so be it.

Sincerely,
Mike

Mike Piper, owner of the Oblivious Investor blog, this morning imposed a ban on discussion of Mel Lindauer’s Campaign of Terror against the Vanguard Diehards board community. Mel is the author of The Bogleheads Guide to Investing. When the Vanguard Diehards community showed great interest in learning about the analytical errors made in the retirement studies widely cited by financial planners and in the Valuation-Informed Indexing strategy, he and his “defenders” engaged in viciously abusive posting on nearly every thread at which these topics were addressed. When Morningtar.com refused to ban honest posting, Mel urged community members at that board to abandon it and to move to the Bogleheads.org board, where honest posting on the effect of valuations on long-term returns has been banned from the first day of operation.

Juicy Excerpt: Several comments on this thread have now been deleted. For future reference, any discussions about what did or did not happen on somebody else’s blog or forum count as “off topic” and will be deleted. The place for those discussions is elsewhere.

The Campaign of Terror that has been led by Lindauer and John Greaney  (owner of the www.RetireEarlyHomePage.com site and the author of one of the now-discredited Old School safe withdrawal rate studies) is of obvious importance to middle-class investors trying to understand why they they have lost so much of their retirement money and why the U.S. economy is now suffering a crisis of confidence. Piper has made clear that he will continue to promote Passive Investing at his site even while permitting (and in some cases encouraging)  abusive posting aimed at silencing those who point out the grave dangers of this “strategy” and even while indicating that his mind is closed to the idea of informing his readers about the grave dangers of the Passive model. Mike said in response to my expression of hope that he would turn to the promotion of valuation-informed indexing strategies rather than passive ones that: “That is not going to happen.”

Mike said in an earlier blog entry that: “I do see (at least a potential) value in adjusting asset allocations as a function of current price levels. But to be honest, I see the misinformation spread by the financial services industry (about active management, picking stocks, etc.) as a far larger issue. And until that battle is won — which I doubt will ever completely happen — I don’t foresee myself taking on any other issues with my writings.”

My take on those words is that Mike has (at least for now) put marketing considerations above his desire to inform his readers what works in stock investing.  I do not believe that Mike possesses a full appreciation (or anything close to it) of the merits of the Valuation-Informed Indexing strategy. However, I also believe that he is aware of at least some flaws of the  Pasive model and has elected not to learn more primarily because of marketing considerations (with perhaps a good bit of cognitive dissonance thrown in).

Mike has not entirely banned honest posting on the grave problems with the Passive approach, according to my reading of his statement. My intent is to continue to post on these questions and others at his blog. If Mike continues to permit abusive posting by the Greaney Goons (both the poster named “Dylan” and the poster named “Linda” have long records of abusive posting at blogs and both appear to be associated with the Greaney Goons — John Greaney runs a discussion board at which those seeking to block honest posting at discussion boards and blogs meet each day to discuss strategies for destroying or compromising these communities), I will continue to object. In the event that his adoption of the new policy translates into a decision to take action against abusive posters, the new policy could end up being a positive step (most community members are more concerned with learning the realities of stock investing than in learning about the abusive practices used by Lindauer and Greaney to block knowledge of them and anything that helps middle-class investors learn the realities will ultimately help in the effort to get the various boards and blogs opened to honest posting once again).

I think it is fair to conclude that this development is one more demonstration of the reality that we have learned over and over and over again during the course of the first seven years of The Great Safe Withdrawal Rate Debate — there is no rational case that can be put forward in support of Passive Investing. There certainly was a time when many smart and good people believed that there was. But that was a long, long time ago. And the most important initiative for all indexers today should be to help us move to the next stage of The Indexing Revolution — the valuation-informed stage.

Addendum: Mike Piper has sent me an e-mail that combines frankness and kindness in a wonderful combination that impresses me greatly (although Mike is certainly not agreeing with all that I say in this blog entry). I will report on Mike’s e-mail in Thursday’s blog entry. If Mike gives me permission, I will run the full text of the e-mail. Mike is trying very hard and I am extremely grateful to him for his efforts at understanding the other point of view. He knows how to disagree with someone while remaining friendly to that person, an essential skill of the most successful long-term investors. The right stuff!

My friend Mike Piper, author of the Oblivious Investor blog, has written a book called Oblivious Investor and was kind enough to send me a review copy. It recommends Passive Investing. To the bonfires with it!

Or maybe not.

I bill myself as the most severe critic of Passive Investing alive on Planet Earth today (and I don’t think you would hear an argument from Mel Lindauer, another friend of mine who wrote a book endorsing Passive Investing — Mel’s book is The Bogleheads Guide to Investing ). Still the full truth of the matter is that the reason why I so strongly oppose the current incarnation of the Passive model is that I see tremendous potential in many of the concepts wrapped up together in the package of strategies that we refer to collectively as “Passive Investing.” My goal is to save the good ideas by pointing out the flaws and getting them fixed. So I need to point out what I like about Mike’s book before turning to the part that in my view is wrongheaded.

The middle-class investor must invest in stocks to finance his or her retirement. Mike makes this point effectively. He’s right.

The middle-class investor needs a simple way to invest or else he is going to get it wrong. Again, Mike makes the point effectively. Again, he’s right.

The middle-class investor becomes hopelessly confused about what works when he tries to make sense out of the tons of junk generated by the media reports on the gyrations of the stock market. Yet again Mike makes the point effectively. Yet, again, he is right (at least that’s my take).

Oblivious Investor presents the case for Passive Investing in an extremely non-intimidating way. The book can be read in a short amount of time yet addresses all of the issues that need to be addressed. The focus is on investor emotions, which is exactly where the focus needs to be. The book makes a point of telling the reader what matters and what does not and of reassuring her that she need not concern herself with all the jizz-jazz that doesn’t amount to much in the long run.

Good.

The trouble for me comes at the bottom of Page 93. That’s where Mike is talking about Mr. Market and where he explains correctly that he is a manic depressive and advises the investor to “just ignore him.”

The trouble is — we can’t.

Mr. Market is indeed a nutcase. I do not agree with Mike (or with John Bogle or Mel Lindauer or any of the other Passive Investing advocates) that Mr. Market is a nutcase that we can safely ignore. Mr. Market at times becomes the sort of nutcase who burns the building down if not asked where he is going with the can of gasoline and the box of matches.

Mr. Market also determines whether our retirement accounts go up over time or go down over time. Nutcase that he is, Mr. Market matters. We cannot ignore him. We need to come to terms with him. We need to learn how to keep him in line.

Mr. Market is the fellow who crashed the U.S. economy. Mr. Market brought stock prices to three times fair value, which assured that the inevitable return to fair value (where we are today) would wipe us out. The wipe-out caused us to cut back on spending, which sent the entire economy into free-fall. No, we cannot ignore this fellow. He is seriously twisted. He is dangerous. This fellow is worse than Bernie Madoff. This guy should be arrested! This guy needs to be put under lock and key.

How do we do it? By being just a tiny bit less oblivious, by being a little more willing to take common sense into consideration than is permitted under Bogle’s gravely flawed first-draft cut at development of the Passive Investing package.

We need to let people know about the academic research of the past 30 years showing that valuations affect long-term returns and explain that that means that long-term investors need to adjust their stock allocations once every eight or ten years on average to keep their risk levels roughly constant. When Mr. Market gets stone drunk while driving the car carrying our retirement money, we don’t enable him by acting like nothing is wrong and saying a survival prayer. We take away the keys. We tell him in no uncertain terms what we think of such reckless behavior. We insist that he go sleep it off and not show up in public again until he’s got it under control.

That’s the change we need to make. With that change, the rest works. Without that change, the economy goes over a cliff. We cannot continue to advise people to buy stocks without telling them what they need to know to keep the car from crashing. It’s just not responsible. It’s just not right.

Mike is right to advise you to be oblivious of the short-term noise. There’s great power in that idea.

But there’s oblivious and then there’s oblivious, you know?

You must never be oblivious of the price you pay for the stocks you buy. You must go with a lower stock allocation when prices are insane than you do when prices are reasonable or low.

Otherwise, Mr. Market the Manic Depressive puts us all in a ditch. We all lose if that happens, the Rationals and the Passives both. It’s our economy. We need to start taking care of it in the manner of a people who want it to remain around for awhile.

Read the book. Learn from what is good in it. Also note what is lacking. Then talk it over with your friends with the goal of getting things back on the right track. We all benefit from having available to us an investing model that doesn’t just almost work or that doesn’t just sound like it might work but that actually does work in the real world.