Set forth below is the text of a comment that I recently put to the Goon Central board:
it’s such a hoot that an old book by Robert Shiller constitutes the totality of academic research on finance on that strange little planet known as HocoWorld.
Shiller’s work discredited what came before it.Until something discredits Shiller’s work, his model remains the state-of-the-art model.
In 32 years, no one has found anything wrong with Shiller’s work.
His work IS something close to the totality of work in this field.
THe work that came before Shiller has been discredited. Work that is rooted in Shiller’s work supplements Shiller’s work. But there is little of that. Russell’s work supplements Shiller. Pfau’s work supplement Shiller. Arnott’s work supplements Shiller. There is not much else.
All of the pre-Shiller work and all of the post-Shiller work that ignores Shiller’s findings is discredited. That is the cause of most of the friction. The people who have done discredited work don’t want to acknowledge it. They are more concerned with their own careers than they are with what happens to the investors they should be serving.
But it is no kindness to these people for us to let them go on producing work that has no value. They are wasting time and resources. Once we all acknowledge that Shiller “revolutionized” (his word) the field, we all can get back to doing useful and valuable and constructive and life-affirming work.
Shiller’s work discredited Fama’s work (in part). The part that was discredited is no longer science. Buy-and-Hold was rooted in the discredited work. Buy-and-Hold once was science but it is not that today.
Shiller’s findings did not supplement Fama’s findings. They discredited them (in part). Shiller and Fama cannot both be right. One is right and one is wrong. There is no evidence supporting Fama. Fama’s interpretation of the data was in error. ALL of the data supports Shiller. None of the data supports Fama. Buy-and-Hold has been intellectually dead for 32 years now. All of the fuss is just about when we will get around to burying the corpse.
The reason why the Buy-and-Holders fight so hard is that they have no case. If they had a case, people could disagree civilly. But when all the evidence is on one side, the only possibilities are to move on to the new model (the life-affirming choice) or to employ abusive tactics to keep investors from learning that Buy-and-Hold has been intellectually dead for 32 years now.
I didn’t cause the problem. The Buy-and-Holders caused the problem by failing to update their model to reflect Shiller’s revolutionary findings.