Valuation-Informed Indexing #173 — Eight Problems With Shiller’s Prediction of a 2014 Stock Crash

I’ve posted Entry #173 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Eight Problems With Shiller’s Prediction of a 2014 Stock Crash.

Juicy Excerpt: Five, Shiller did not specify the size of the crash. We don’t know the precise size. But we know that all earlier secular bears have brought the P/E10 level down to 7 or 8, a 65 percent price drop from where we stand today. We should be telling people that. Many Buy-and-Holders are today holding on to a fantasy that this bull/bear cycle will bring less pain to investors than any earlier one. Responsible commentators should be doing all they can to throw cold water on fantasy thinking of that sort. It is dangerous.


  1. Anonymous says

    You and no one else know if and when there will be a crash. If there is a crash, no one can predict the magnitude. What we do know is that the market has always recovered and taken us to new highs. The market could go to 18,000 and then “crash” to 16,000. You would still be left out. Buy and holders know that you cannot predict what and when anything will happen but that things will not only recover, but set new highs. Peer reviewed research supports that. Shiller supports that and that’s why he is in the market.

    You got left out, Rob. You hope for a crash so that you can try to save your retirement. Meanwhile the world and the market passed you by while you and your family have suffered financially.

  2. Rob says

    This is the entire issue on the table, Anonymous. If it is not possible to predict long-term returns, everyone should follow a Buy-and-Hold strategy. I give you that one with great enthusiasm.

    My problem with Buy-and-Hold is the 33 years of peer-reviewed academic research showing that it IS possible and necessary to predict long-term returns when setting your allocation.

    I don’t know for a fact that there will be a crash. I am not God. I am just going by how the stock market has performed for 140 years. If you believe that it’s all going to turn out different this time, you should go with that feeling. But please don’t ask me to go with that feeling. I am a believer in research-based strategies.

    I’ve told you before that, if you are going to place all your hopes in what Shiller is doing, you should try to find out more from him re why he is doing what he is doing. You showed zero interest in that idea. You don’t want to know. I wonder why.

    Read the article in which Shiller says he is at 50 percent stocks carefully. He also says in that article that he is watching some “indicators” to figure out what is going to happen. Shiller has predicted that there will be a crash in 2014. My guess is that he is planning to use these “indicators” to jump out of stocks before the crash hits. That’s short-term timing. I think it is a foolish way to proceed. Shiller could get lucky. He might get out at just the right moment. But of course the odds are against those practicing short-term timing. There’s 49 years of peer-reviewed academic research showing that.

    I wish you all good things, in any event.


  3. Rob says

    What we do know is that the market has always recovered and taken us to new highs.

    I reread these words this morning and thought that I should respond to this particular point.

    The market WILL recover and go to new heights. That’s a stone cold fact.

    The thing to keep in mind is that those who follow research-based strategies will have a LOT more in the way of assets to invest in the market when it is on its way to new heights. Plus, the differential that those who follow research-based strategies will enjoy over those following Buy-and-Hold strategies will grow larger and larger over time through the power of the compounding return phenomenon. The Buy-and-Holders will have no hope of catching up because Valuation-Informed Indexers go with high stock allocations whenever stocks are priced to offer a decent or good long-term return.

    It’s not an accident that Valuation-Informed Indexing has now beat Buy-and-Hold in 140 years out of the 140 years of stock-market history available four our review. The price you pay for any good or service determines the value proposition you obtain from the purchase. Stocks are not the first exception to this universal rule, no matter how much money the Wall Street Con Men are able to make by telling you the opposite.


Leave a Reply

Your email address will not be published.

Comments links could be nofollow free.