Valuation-Informed Indexing #167
by Rob Bennett
I recently attended the 2013 Financial Bloggers Conference in St. Louis. The two most interesting things that happened were that I gave a talk titled “How to Become The Most Hated Blogger on the Internet” and I had a long conversation with a big-name blogger who told me that the reason why I have a problem getting other bloggers to write about Valuation-Informed Indexing is that the case I make for it is “overpowering.”
Last year was a banner year for hedge funds in general, as the industry attracted $31 billion worth of net inflows, according to data from HFM. That total included a challenging fourth quarter, in which investors pulled more than $23 billion from hedge funds. HFM reported $12 billion in inflows for the first quarter following Read More
That’s what he said.
How do you respond to something like that?
Telling a blogger that the arguments he makes are overpowering is like telling a baseball team trying to win the World Series that it has too many home-run hitters. No one intentionally gives up home-run runners. No one intentionally weakens his arguments so as not to offend.
The amazing thing about the story is that what my fellow blogger said really is so. I really would have more success if my case were weaker.
You can see the slides for my talk here.
The slides tell an emotional story, not an intellectual one.
That’s why informed observers say that the problem is that the case is just too darn strong. When people are open to an argument, you want the case to be as strong as possible. When people are not open to an argument, a strong case is an annoyance. When people are not open to an argument, they prefer an argument that is easy to ignore.
One of the slides quotes Former Financial Analysts Journal Editor Rob Arnott as saying something to the effect that it is easy to determine what stock returns are going to be if you know simple math and that it is amazing that there are so many smart people working in this field who do not seem capable of performing that simple math.
He’s making a point not too far removed from the point made by my blogger friend. Arnott is saying that there is no intellectual problem here — we could all know far more about how stock investing works he we cared to. We just don’t care to!
Because it causes us emotional pain to do the math he talks about.
If you want to be popular in this field, you hit fewer home runs. People don’t want to see you offer the best investing advice possible. That would be too “overpowering” to take. They want you to play dumb.
Ironically, the reason why people want stock advisors to play dumb is because investing is so darn important. Get investing wrong and you mess up your hopes for retirement. Another way of saying it is that, if you mess up investing, you mess up your life.
So we cannot bear to hear that we have messed up investing.
Huge advances in our understanding of how stock investing works will not be tolerated. Huge advances in our understanding of how stock investing works make us all uneasy that we followed the old beliefs for so long. Bloggers who offer us huge advances in our understanding of how stock investing works earn only our hate.
The good news is that that’s changing.
I’ve been going to the financial bloggers conferences for three years. The first year, I was worried whether anyone would even talk to me. I was greeted warmly by lots of people. The second year I was given a chance to speak as part of a group of three. This year I was given a chance to speak solo. Next year I have hopes of giving the keynote address! (That’s a joke.)
The serious point here is that I have noticed a warming to my message each year I have returned to the conference. People don’t want to hear that everything that they once believed about stock investing is wrong. But they are opening up to the possibility. The old beliefs are not working out so hot. People are feeling pain. Eventually that pain will grow so large that the idea of hearing the “overpowering” ideas will sounds more appealing than the idea of continuing to resist them.
Please take another look at the slides. There’s a line quoted in one of them that reads: “What if economics is actually at the same level as medicine was when doctors still believed in the application of leeches?”
That’s the story here.
It’s a scary story.
We like to think that we are smart and up to date and sophisticated in our thinking on just about every issue. To think that our understanding of how stock investing works is rooted in ideas that might as well be from the Middle Ages scares us all to heck. It CANNOT be. So we tell ourselves it isn’t.
The reality is — most of the “experts” in this field don’t know what they are talking about. We are at a primitive stage of our understanding of this important subject matter. We have a lot to learn.
Once we open up to that reality, we will be able to learn a lot all at once. There is lots of good stuff that we have been ignoring for years now.
It’s going to be an overpowering experience.
And a very, very good one.
Rob Bennett has recorded a podcast titled Today’s Understanding of How Investing Works Is Primitive. His bio is here.