Set forth below are some words that Arty put to the comments section of a blog entry from last week:
To the Rob quote you mentioned, above, I do agree, as would Shiller and many, that extreme far-right valuations represent “dangerous road conditions”. And I’d add that this might apply not just to “buy and holders”.
Every year I have some intermittent discussions with Rob, usually around holidays or when I am of from work. I do understand he is quite enthusiastic on his views. Indeed, he can be exhausting, and perhaps does not recognize well-supported contrary views as well as I wish he would. Rob knows that and I know this going-in.
I understand the frustration some might feel with Rob, and I believe he can do much better with his dialogue approach. But this is sometimes also said of me, and it is not upon me to teach anyone else better discourse methods. What would he say if I suggested thus? I assume others have already done this. Maybe you have.
Rob and I do agree on some basics, and that “valuations matter” is likely the main of them (of course, many experts do not dispute that.) In fact, I first discovered Shiller and PE/10 long ago because of Rob, which is why I have returned here occasionally to say “hi” and chat. I do read the various investing boards when I can, and have found some discussion of PE/10 there too. Rob and I also agree that emotions can matter greatly in investing, as looking at any discussion board, and even its leaders, will pointedly demonstrate.
Rob and I do NOT agree on some central points. I do believe there is a buy and hold approach that accomplishes much of what he (or Shiller) might intend with P/E 10, though I feel it lies in what we might call a more conservative approach to investing that recognizes the “fat tail” events of the bearish kind—the wealth killers. PE/10 seeks to avoid that with long range timing, of course. I am hopeful Rob can recognize the validity of this approach to buy and hold and I am not sure the approaches are mutually exclusive (especially at extreme levels). But I think he’ll likely pass. It’s OK.
While I think Shiller’s PE/10 concept and Rob’s tools that use them are fascinating, I am not sure if they are very useful beyond the extremes of valuations—the broad middle. I have tried to examine this, and have not been successful in finding acceptable solutions for their general use, either by me or elsewhere. Rob seems to feel committed to his views and solutions. Perhaps Shiller does too. Though, I have indicated that even Shiller is still waiting for a better time to buy than March 2009 (as per his own words). He waits still. And if I used the Shiller tool, I would never be wholly out of stocks.
I suppose had PE/10 a definite utility, its use would long since have been employed by experts whose livelihoods depend on outperformance. PE/10 would have “changed everything” in that area. It hasn’t. Though, there again, we might agree that institutional managers have other ways to make money from us and may not seem popular if they were lagging the market as a whole—something that a Shiller model must sometimes do.
My question to you is given your position about Rob, why do you return here ever and read his articles and posts? You clearly have some history with him.
Happy New Year!