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Weekend reading: Vanguard on bonds, and a big rant by me about blog comments

Weekend reading

Good reads from around the Web.

We’ve written several times about the end of the bond bull market. We agreed that bond prices looked extremely likely to fall eventually as interest rates rose. But we’ve argued that even though the expected returns from bonds must mathematically be much lower than in the recent past – perhaps even negative, after inflation – there was a good case for keeping hold of your bonds, especially if you’re a passive investor.

Alternatively, if you must be different, then – while it’s not the same as bonds – cash in the best savings account is a reasonable alternative these days. Indeed it’s what I use currently for my safety net beneath the high-wire of equities.

Everyone knows interest rates are low. That’s not the point. The thing to realize is you’re not really holding bonds or cash for returns these days. You’re doing it to reduce risk.

Joe Davis of Vanguard made the point well this week:

Risk is a relative term. If someone asked you to set aside $150 a month, possibly with no return on your investment, you’d probably say, “No way!”

Yet what if you knew the alternative was losing your home and all of your belongings in a fire, flood, or other emergency, with no funds to help rebuild your life?

Suddenly, the $150-per-month payment for disaster insurance might seem like a good idea.

The same perspective can apply to bonds. If you’re considering an allocation to bonds but have been warned that this allocation may have low or even negative returns in the next few years, you may see bonds as a risky bet.

Yet by weighing the risks of the alternative — that an allocation to equities is far more likely to experience highly negative returns of –5% or more during the same period according to output from [our] model — you may begin to recognize bonds as the steady diversifier and volatility dampener they truly are when combined with a stock portfolio.

Read the whole piece – and our articles on bonds that I linked to in my opening paragraphs – for more.

The silenced minority

Now, somewhere out there a reader is set to jump to the end of this article and write a comment saying I’m an idiot who doesn’t understand bonds are sure to lose money etc etc. Bonds are the risky investment right now! And so on.

As if this has never occurred to me, or to Joe Davis of Vanguard. As if we are witless muppets doomed forever to lose our money to the cunning market.

In fact, this person1 is very unlikely to have read the Vanguard blog. They just want to make their point. Again.

But today they won’t be able to because I’ve turned off comments. Just on this post for now, as a one-off.

Most things about blogging about investing for six or seven years are great. But spending 4-6 hours writing a long and detailed post only to get these same sort of comments from the same 2-3 people (a revolving cast, they tend to wander off after a few months but are topped up by newcomers) is pretty tedious.

Please understand I don’t mean all of you who comment on articles!

There’s a great – collaborative and sometimes challenging – discussion happening on The Accumulator’s post about financial independence this week, for example. That’s community and commenting – and our site’s above-averagely clever readers – at their best. Everyone comes away smarter.

Also, I never mind people not understanding or genuinely having doubts, and voicing them. I don’t mind people disagreeing, for that matter, if they have the courtesy to actually read the article first and know what they’re disagreeing with and why they might be wrong.

But for a hardcore handful, blog commenting seems to be an excuse to try to explain what they know while only really demonstrating what they don’t.

The Myth of Sisyphus

The best of these people are at least polite – even nice – but repetitive and misguided. The worst are rude, and I need little excuse to delete their comments.

If you wonder what sort of comments I would delete, go and read either The Daily Mail or The Guardian’s comments under a contentious political story. It ain’t pretty!

Please be clear: this website isn’t a democracy. I will delete anything offensive or offensively stupid. Or that I want to, frankly, though it rarely comes to that. (Once or twice on my Thatcher post, perhaps).

It is incredibly tedious writing among the most long-winded investing posts you’re likely to find on the Internet – stuffed with more caveats and footnotes than a billionaire’s pre-nup – only to have someone pop up and say: “Your advice is reckless, anyone staying in this rigged Bernanke-market is doomed!”

Yet it’s almost worse when they make sensible sounding comments such as:

  • The market goes through booms and busts, so you must always try to sidestep the busts
  • Tracker funds are inherently dumb, so it’s easy to do better by avoiding their excesses
  • Bonds are yielding 2%, so investors will obviously do better without them
  • The market looks expensive because it’s on a P/E of X, Y, or Z, so best to get out
  • Inflation/deflation is obviously coming, so it’s clear we should do X, Y, or Z
  • The gold price is at $1,800 or $1,600, or $1,000, which tells you X, Y, or Z
  • Neil Woodford has beaten the market, therefore it’s obvious that Joe Blog Commenter can too, isn’t it? Or do I really think Woodford is merely lucky? Or magic?

All these things sound perfectly sensible – whereas index tracking sounds idiotic at first. And of course that’s what makes their comments so dangerous.

Nobody doubts returns would be far better if you could be in the best asset classes all the time, exit the market in time to avoid crashes, and do a bit of judicious active management to juice your returns – or even to pay a well-known talent like Woodford to do it for you.

Unfortunately there is decades of data proving that all those common sense ideas will reduce returns for the majority of those who try.

That’s true whether they are professionals or simply a new investor asked to manage her own pension for the first time. Not for the gifted or lucky few, perhaps, but certainly for the majority who have historically done so poorly from investing in shares, whether from the cost consequences of active management, or from under-performance or dire market timing or worse.

On the other hand, passive investing in a widely-diversified portfolio has demonstrably delivered results that are acceptable to nearly everyone. It’s simple in principle and it gets the job done. Yet it’s under-discussed and misunderstood, especially in the UK.

So that’s why we promote it on this blog.

A family friend suggested I just ignore the handful of negative or incorrect comments tagged on to articles. “Everyone knows that comments on the Internet are nonsense,” she said.

But I feel I can’t.

I don’t want a casual reader of this website who might be about to get on the right track of lifelong investing to pick up the wrong lesson under my watch, even if it’s not from my mouth. So I can’t let these seemingly certain, obvious, and generally incorrect comments stand unchallenged. Hence I end up having the same tedious debates over again.

(What may not be apparent to a regular reader is some of this happens on old articles you probably don’t see anymore. The new articles are just the tip of the iceberg with an established site like Monevator. And then there’s email…)

Commonsense but uncommon success

Am I a hypocrite? One of these commentators asked me why I didn’t accept all his certainties about market timing and so on, given that I – as I have I always admitted – invest much of my money actively for myself, unlike my purely passive co-blogger, The Accumulator?

And that brings us to the crux of the issue.

It’s because I think the things that the active advocates call for are so difficult, so speculative, and so unlikely to work out for most people that I stress the much more sensible route of avoiding the game altogether and going passive.

Indeed if I turn out to have beaten the market over the long-term – and if it’s not luck, which we’ll never know for sure – then it will be in part because I think it’s extremely difficult to do so, not because I thought it was easy.

It’s also why The Accumulator joined the site a few years ago. His consistent passive investing message is exactly the one most people need to hear when it comes getting their investing sorted over 30 years.

In contrast, the people who claim timing markets or forecasting asset returns is easy are either deluded, or they have some other agenda to promote.

Study after study shows the generally negative impact of the kind of poor decisions they advocate. They’re simply wrong to suggest that anything other than luck or very rare and hard-to-identify skill is required to do these things.

Reading the riot act

One day I may turn off the ability to add comments to this site. I’ve seen many big websites and also a few friends do it. Mike at Oblivious Investor, for example, turned off comments a year or so ago. Negative comments are sapping the will of Sam at the Financial Samurai blog, too.

It’s not come to that yet on Monevator. The sort of comments I’m taking about are still in the minority, and the input we’ve had from readers about things like platform fees has made us all smarter.

And to be clear I’ve always been happy if someone has quietly asked us why, for example, they should hold bonds when the price can clearly only go down – provided it’s not at the end of a post that explains exactly that. If you still disagree then fine, more power to you, but don’t feel you need to tell me about it unless you see factual errors.

I’ve never been happy to be lectured in a way that ignores everything I’ve just written. It’s wearying, and I’ve genuinely never learned anything from these people.

Almost worse, I don’t think they’ve learned much from me.

So it seems an arid exchange.

This site is not for these people. It’s for the 100,000 or so visitors who now arrive at Monevator every month, the vast majority of whom can pull up a chair and consider themselves at home.

And – while it’s not compulsory – it’s definitely for the 2-3 newcomers who email me every week to say they’re pleased to have finally found the information they were looking for to demystify investing.

In fact if you’re new around here then I’m sorry you had to wade through all this. I’m not normally so self-indulgent, honestly!

Long story short, commenting on this blog is not like writing a letter to your MP or the BBC. More so than ever – because I am getting so fed up with the annoying few – it’s my house, and my rules.

So know that anything you write may be deleted on my whim. Consider this fair warning as to the comment policy on this website. I will not let Monevator turn into another poisonous bicker-fest, such as you see at the online newspapers these days. There’s an entire Internet out there if you enjoy flame wars with strangers. I don’t.

The majority of our 100,000 monthly visitors never write or even read the comments – or when they do write comments they’re the useful or constructive sort. So this doesn’t apply to you, anyway.

Some of you will feel this whole rant is ridiculously over the top. Even some of you good guys! And I don’t blame you. Unless you have a website and have to deal with this stuff, it’s very hard to understand how soul-sapping it is, and it’s hard to explain. Just to take it from me (or have a Google), or set up a website for yourself and see.

Finally, if you’d like to say something nice or supportive and can’t because I’ve turned off the comments on this post, then thank you!

If you’ve not already, please “Like” this site on Facebook via that link, or by using the box in the column to the right. That would be a nice gesture.

It’s silly, but it nags at me that we’re behind The Motley Fool for Likes. We’re supposed to be the cool new ‘kids’ on the block. 🙂

Have a great weekend.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: IKEA has given the struggling solar power market an energy boost with its new £5,700 all-in system. IKEA has partnered with Hanergy, an installation firm, explains The Guardian, so you won’t need to assemble it from a flat pack. If you live in the south and own a decently positioned roof, payback is estimated at 7-10 years.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2

Passive investing

  • Expensive trackers vs cheap active funds [Podcast]FT Money Show
  • Time to ditch the Yale endowment model – Bloomberg
  • A deep dive into the complications of bond ETFs – Index Universe

Active investing

  • Is Twitter worth its $9.7 billion IPO valuation? – Dealbook
  • Royal Mail float also attracts huge interest – Telegraph
  • Time to pull closet indexing out of the closet – FT
  • Vanguard’s tips for investing in active funds – Morningstar
  • “Why I buy shares I know nothing about” – Telegraph
  • Hedge funds can win, when they’re still tiny and not dead – FT

Other stuff worth reading

  • Is Help to Buy a waste of time? – The Telegraph
  • Five dirty tricks in today’s property market – Telegraph
  • Cardiff top UK city for 18-30-year olds to live in – Independent
  • The case for greedy bankers [Good article, dumb comments]Guardian
  • Facebook’s super-cool Swedish data centres – Business Week

Amazon deal of the week: No new books this week, but while checking I stumbled across Amazon’s Subscribe and Save service. This enables you to sign-up for regular deliveries of products like nappies or dog food. There’s up to a 15% discount on such subscriptions, and no delivery charges. Pretty neat.

Like these links? Subscribe to get them every week!

  1. I am not really thinking of any specific person — it is more an amalgamation of 3-4 people []
  2. Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” []