Valuation-Informed Indexing #170
by Rob Bennett
The YouTube video of my Ignite presentation to the Financial Bloggers Conference for 2013 (FinCon13) is now available. It’s titled How to Become the Most Hated Blogger on the Internet. The fellow who writes the award-winning Joe Taxpayer blog wrote about the presentation at his blog and that post generated a long discussion (125 comments!) between me and my critics (or perhaps it was between me and one of my critics pretending to be several different people — you’ll get the joke if you read to the end of the discussion thread).
George Soros And The Human Uncertainty Principle
The division between academic economics and the way traders look at the market is deep. The efficient market hypothesis assumes that markets and valuations are always pushing towards an equilibrium, and evidence to the contrary gets pushed aside as fluctuations or statistical deviations. But the dot com bubble, the
Joe and three other bloggers came up to me at the end of the other presentations to offer their thoughts on what I said. I was told that it was really smart marketing to focus on the “most hated” aspect of the story. People know that when one side in a debate evidences hate, they are revealing a lack of confidence, I was informed. So I was told to never miss an opportunity to play up this angle.
That makes sense. Unfortunately, I believe that the debate between Buy-and-Holders and Valuation-Informed Indexers may be the exception that proves the rule. The Haters have been directing their rage at me since the morning of May 13, 2002, when I put forward my famous post pointing out the errors in the Old School safe withdrawal rate studies. It hasn’t been my experience that their rage causes too many others to take my side.
It’s just the opposite, really. I have found going back to the early days that lots of people appreciate my message UNTIL they see the other side turn to expressions of hate. Then they drop out of the discussion. In many of the threads that I participated in at large discussion boards, there would be a good number of posters participating in constructive discussions in the early going. Then some nasty stuff would be put forward and the best posters would leave the thread. After awhile, it would be just me and a small band of critics who made clear that they had zero intention of paying any attention to what I was saying.
I’m always trying to understand why this strange dynamic applies in this particular debate.
I think that part of it is that everyone plays a direct role in the stock investing story. It was a rare person who didn’t go with a high stock allocation in the late 1990s. I am saying that it was dumb to go with a high stock allocation in the late 1990s. I am obviously not saying that the people who made this mistake were themselves dumb. The implications of Shiller’s findings have never been widely publicized, so must of us were just uninformed as to the realities at the time. Still, it is a ticklish matter. People remember that they went with high stock allocations and so they feel repulsed when they see an argument taking shape that is built on the idea that going with a high stock allocation at a time when stocks are selling at insanely high prices is not such a hot idea.
Another big factor is the Social Stigma that applies to anyone who criticizes Buy-and-Hold. Buy-and-Hold has been marketed very effectively. It’s like hot dogs and apple pie and Chevrolets in the minds of many investors. I remember one time when I described Buy-and-Hold as a “Get Rich Quick scheme” at a blog and one fellow said that he had never before heard today’s dominant model for understanding how stock investing works described in that way. Pioneers often end up with arrows through their hats.
I designed this talk to make note of the hate stuff (the investing story cannot be told without it — the key to successful investing is reining in your emotions and Buy-and-Hold strategies encourage investors to give in their Get Rich Quick impulses by telling them that they can ignore price and that somehow it will all work out in the end anyway) while not causing defensiveness to kick in. That’s why there are slides of things like little boys holding tight to their teddy bears for comfort. I was trying to work up under my listeners’ radar through use of a lighthearted tone.
It didn’t quite work.
I contacted a woman coach at the conference and told her that I might like to work with her to see how I can get my message adopted at a number of major blogs. She was in the audience that night. She told me that people around her were saying that I came off as “bitter.”
I know she is telling the truth. And I don’t doubt that the people who said that I seemed “bitter” really felt that emotion. But that’s all it was. There was nothing “bitter” in that presentation. There was substantive stuff of great import (I talked about why Shiller won the Nobel prize). There was funny, heart-wrenching stuff (like the boy-and-his-teddy-bear-slide noted above and the narrative that went with it). There was no bitterness. I know because I had lots of stories that people need to know about that I deliberately cut because I wanted to avoid any perceptions of bitterness.
People are saying that this talk was “bitter” because they are hurting. That’s my take. Lots of us believed in that out-of-control bull market. Lots of us have delayed our retirements by many years by doing so.
We’ll get over it. The stuff that won Shiller his Nobel is so exciting that we are going to figure out a way to talk about it, no matter how much it hurts to start the process.
Maybe next year I’ll hand out actual teddy bears instead of just providing slide images of them. Perhaps it’s just a matter of figuring out how to provide comfort and healing to our wounded investor feelings in a more direct manner.
Rob Bennett has recorded a podcast titled It Takes a Community to Fix What’s Wrong With Stock Investing Today. His bio is here.