SaveBuyLive

The following is a guest post from Rob Bennett is the author of the “A Rich Life” blog. He has posted over 75 podcasts on how stock investing works in the real world at his web site.

It’s okay.

It’s more than okay. It’s the right thing to do for several important reasons.

I’ve spoken with tens of thousands of middle-class investors over the past seven years as part of a series of discussions in the Retire Early and Indexing discussion-board communities referred to collectively as “The Great Safe Withdrawal Rate Debate.” One thing I’ve learned is that most middle-class investors are intimidated by investing “experts.” Even when their common sense tells them that the story being told by the experts doesn’t hold up, they assume that the experts know something they don’t and defer to them.

No!

This must stop.

We are living through an economic crisis today. It’s primarily because most of us have lost large portions of our life savings by overinvesting in an insanely overpriced stock market. Did the experts warn us of the dangers? Some certainly did, perhaps 10 percent of the expert community. 90 percent didn’t see it coming. 90 percent contributed to the problem. 90 percent aren’t the experts they are made out to be.

If you messed up in your job, you would expect to be held accountable. Should we not hold the investing experts accountable when they mess up and cause us to lose big bunches of money? I sure think we should.

Some will say that that’s not fair, that no one could have predicted the stock crash. I know different. I am just some guy who posts stuff on the internet, hardly someone who could properly be termed an “expert.” But I saw the crash coming. I have been publicly predicting it since May 2002. How did I know?

I knew because I spent a little bit of time investigating the realities. Stocks have gone to insane price levels four times in U.S. history and we have seen a huge price crash on each of those occasions. The average price drop in those four cases has been 68 percent. Does that not tell us that a crash was a serious enough possibility that we should have been warned that perhaps buy-and-hold isn’t such a hot idea once prices go to the levels that applied pre-crash?

It’s important that we hold investing experts accountable. There are huge financial incentives in this field for telling people what they want to hear. During a time of insane prices, most people want to hear that high prices are no biog problem, that investing passively (sticking with a single stock allocation at all valuation levels) makes sense. The few experts who told us the true story were sticking their necks on the line by doing so. But, if we don’t point out that they have done a better job than the ones who were advocating buy-and-hold, is it fair to expect them to continue doing so? Those who get it right should be rewarded with praise. Those who drop the ball should be asked to stay after practice and do extra drills.

My sense is that many of the experts who endorsed Passive Investing would like to shoot straight but fear the reaction of investors heavily invested in stocks if they do so. They are in a trap. The problem is that those who are emotionally invested in stocks speak up a lot more than those who are uneasy over high valuations but not as intense about the subject. We can help the experts find their way out of the trap by being more vocal about the dangers of high-priced stocks and by insisting that the experts spread the word.

It’s not only those heavily invested in stocks who suffer from price crashes. When the economy goes into a recession or a depression, we all suffer from the loss of jobs and houses and businesses. So we all should be speaking up about the core problem — the indifference to overvaluation evidenced by most big-name investing experts. If the experts hear from us more often, they will take our views into account when offering advice. They hear often from those overinvested in stocks. How often do they hear from the millions of more responsible investors?

Rob Arnott has predicted a “revolution” in investing advice in coming years. The conventional advice of the past 30 years is the product of academic research done in the 1960s and 1970s that has been discredited by research done over the past three decades. But the newer research is rarely referenced. Most experts worry that admitting mistakes made in earlier days will make them look less authoritative. I think the opposite is so. I feel greater trust for experts who can admit it when they get things wrong. But I think it is fair to say that the revolution will come about much sooner if we all begin speaking up more strongly in support of the idea of hearing about the new findings (findings that show that Passive Investing can never work in the real world).

Investing experts are like everybody else. They are flawed humans. They get things wrong. And they are inclined not to admit it too readily. They do more harm to their reputations in the long run by failing to do so, of course. They need our help. We need to insist that the experts do a better job of telling both sides of the stock investing story than they have been doing for the past three decades.

We need to learn to talk back to the investing experts. Our retirements depend on it. So does the future of the U.S. economy. And, in the end, it’s the best thing for the experts themselves, who won’t put themselves through the pain that is always the price of learning something new unless we put some pressure on them to do so. By insisting that the experts do a better job of helping us, we end up helping the experts too.