, ValueWalk

Everything that I know about stock investing I know as a result of the existence of the internet. I never studied stock investing in school. I never managed a fund. But I believe that there are a few things that I have come to know that are pretty darn important. I learned those things by interacting with both experts and with ordinary investors in conversations held on the internet.

I’ve seen Buy-and-Holders react defensively when I challenged their beliefs. That told me something. It told me that they are not entirely confident in their strategy. They want to believe. They don’t want to explore new possibilities. But they are not able to just accept that there are people out there with different viewpoints. It bothers them that there are people who see flaws in the Buy-and-Hold strategy. That’s not something that I could pick up from reading a book. It’s something that you can only detect by seeing how people react in real time to the expression of different ideas. The internet is the only communications medium that I know of that permits us to track such reactions with ease.

The same sort of thing applies with experts. A good number of investment experts are willing to respond to questions from their readers on the internet. Again, the reactions that you see when Buy-and-Hold dogmas are questioned are revealing. Many experts who generally endorse the Buy-and-Hold strategy are willing to acknowledge that it is not perfect in every way. But very few are willing to explore in depth the flaws of the strategy. That’s a highly counter-intuitive reality for me. My thought is that, when you discover a flaw in some set of beliefs you follow, you want to drill down and figure out what caused the mistake so that you can fix it and so that you can be sure that the same false premise has not caused other mistakes. Rarely have I encountered an expert in this field who wants to dig down deep in that way. Most seem willing to go only so far in their questioning of the Buy-and-Hold strategy.

Again, I couldn’t have learned that from reading books or from listening to speeches. Books and speeches generally present polished arguments that do not make the holes in the case apparent. The thing that I most enjoy about the internet is that it is a very informal medium and thus it shows cracks in the wall of logic that would not be visible in most other communication mediums. And the response that the person evidencing the faulty logic has to being called out on it reveals his depth of conviction and on some occasions points you to other areas in which there might be more faulty logic in evidence.

People learn by talking things over. I strongly believe that. We are not computers that take in data bits and then regurgitate them from our brains when called to do so at a later time. We form somewhat fluid opinions, then we present them to our friends and obtain feedback, and then we ponder the feedback obtained and reformulate the ideas until we are satisified that they continue to make sense. Following discussions as they take place on the internet permits us to witness this process of reconsideration and reformulation as it takes place. It was not possible to do that before the internet came along and I believe that the creation of the new communications medium has opened the way to developing a deeper understanding of both the strong and weak points in a case by letting us see the process by which ideas are clung to or revised or discarded.

That’s the good side of the internet, in my assessment. There’s a bad side too.

The bad side is that the internet can generate a false sense of security in ideas that are not challenged. I recall one time when I posted a comment at a blog describing Buy-and-Hold as “a Get Rich Quick scheme.” There was a fellow who observed that he had never heard anyone say that before. I don’t think it is because no one but me has ever thought it. I know that there are others who think it although it is probably only 10 percent of the population that is in our camp. But that fellow was misled into thinking that there was no one in that camp, that there is a universal acceptance among all reasonable people that Buy-and-Hold is a fine strategy.

Why had he never heard the idea that Buy-and-Hold is a Get Rich Quick scheme expressed even though 10 percent of the population believes that this is so? People who hold views held by only a small minority tend to keep them to themselves in internet discussions. This is a communications medium that permits majorities to stomp out the expression of minority opinions and most of us don’t like the feeling of being stomped out. So once we discover that our views are minority views, we keep it zipped. But then those listening in come to possess an unjustified level of confidence in the ideas being considered; the ideas are supported by only 90 percent of the community congregating at the internet site but the impression is planted that they are supported by 100 percent.

The internet does a great job of facilitating exploration of the strengths and weaknesses of ideas. There has never been another communications medium that did as good a job of this. But the internet does a poor job of indicating the true level of support for an idea among the community members considering it. All humans want to be liked and so we are reluctant to be so rude as to challenge beliefs that most of our friends hold to closely.

Rob’s bio is here.

For more market trends, visit ETF Trends.