I’ve posted Podcast #46 to the “RobCasts” section of the site. It’s called Investing Is a Science (When It’s Not Science Fiction).
This is an issue that should bring Passive Investors and Rational Investors together (I believe that it will do so somewhere down the road a stretch). The big innovation of Passive Investing was to make investing a more scientific endeavor. The problem is that the Passive Investing advocates made some serious mistakes (humans!) and now need to fix them. But they somehow have gotten the idea in their heads that scientists never get anything wrong. Not so. True scientists learn from their mistakes. The idea behind Rational Investing is to take seriously the advocacy of the use of science in investing first promoted by Passive Investing advocates.
Programming Note: The blog will return on Monday, January 5, 2009, with its usual blend of soft science and hard silliness.
The message on the Christmas card I sent out this year reads: “…and the Passive Investor shall lie down with the Rational Investor.” For reasons beyond the reach of human comprehension, God elected to throw us all together and charge us with the responsibility of finding a way to make it all work out. My sincere take.
A merry Christmas to Normals, Goons, and “Experts” alike!
Finance professors favor passive investing for their own money
https://personal.vanguard.com/us/VanguardViewsArticlePublic?ArticleJSP=/freshness/News_and_Views/news_ALL_financeprofs_12222008_ALL.jsp&src=NMC&returnLink=/freshness/News_and_Views/news_ALL_financeprofs_12222008_ALL.jsp
Thanks for providing us the link, XYZ. This is a good point that people should be taking into consideration when making decisions about their own investing strategies.
Please note that the article says that “most” finance professors follow Passive Investing. I am confident that this is so. I am equally confident that this practice is not universal.
Rob
This is an interesting RobCast. It is in plain English. You do not have to be an investment specialist to understand it.
Passive investing is no longer science. It once was. Rational investing is real science. It is a search for the truth.
Have fun.
John Walter Russell
Peter Shiff made short term predictions and they were right. This is always difficult.
I think that he would have been taken more seriously if he had loosened the time frame, not requiring that everything happen this year.
Still, he made a great series of predictions.
Have fun.
John Walter Russell
It is in plain English.
Thank you for saying that, John.
This is certainly my goal. I don’t believe that there is much that I say that has not been said by a good number of people smarter than me at earlier times. At the same time, I don’t think that most investors are aware of the ABCs of how stock investing works in the real world. Too many of today’s “experts” have bought into the fallacy of the Passive Investing model. This has proven to be nothing short of a disaster.
My aim is to make the realities understandable to the average investor. I see that as important work given the state of understanding of the realities that applies today.
Rob
Passive investing is no longer science. It once was.
I strongly agree.
Passive Investing was a step forward because it was an attempt to make sense of the investing project. It failed because of the unwillingness of its major proponents to acknowledge the errors in their approach when these were first brought to their attention. This was long before the first Retire Early board came on the scene. The academic research revealing flaws in the Passive Investing model dates back to the early 1980s.
Rob
Rational investing is real science. It is a search for the truth.
Precisely so. Rational Investors are going to get things wrong, just as Passive Investors did before them. And for the same reason — we too are human.
The key is that we not fall into the dogmatism trap.
It’s not an easy trap to avoid. The problem with dogmatism is that those who are being dogmatic never view themselves as being dogmatic. The dogmatic thinks he is right and that being right justifies his unwillingness to consider other points of view.
From the song Trap Door:
The funny thing about being humble
Is that, once you know you’re being humble,
You’re no longer being humble.
The funny thing about pride
Is that, once you’re feeling proud,
You should be feeling ashamed.
Rob
I think that he would have been taken more seriously if he had loosened the time frame, not requiring that everything happen this year.
I certainly agree that his predictions would come through for his listeners more often if he would make them long-term predictions rather than short-term predictions.
My amazement with the video is that those with different viewpoints can be seen laughing at him. Huh? Are they so sure of themselves that they can justify laughing at other points of view?
They were indeed that sure of themselves at that particular moment of time. A bad sign. A very, very, very bad sign.
In fields of endeavor other than investing, most people view it as a bad thing to see people laugh at other points of view. They interpret it as a sign of a weak hand, a sign of insecurity, a sign of defensiveness.
I think it would be a good idea if we applied many of the insights that humankind has developed re human nature in all other areas of life endeavor to the development of knowledge in the investing field. We should subtract points from viewpoints put forward by people who are so full of fake bravado that they feel a need to laugh at those with different points of view. Yucko!
Rob