Set forth below is the text of a comment that I recently put to another blog entry at this site:
What a quandary for you, Rob. You are shooting holes in their credibility.
So, I guess you won’t be referring to Shiller or to Wade Pfau anymore since they are not reliable sources based on your comments.
Unless…………………..we put them on different “levels”…….hhhhmmmmmm………..maybe that will work. Of course, Rob, you will be the new leader and then the other people are on levels below you. It just comes down to what level you put them.
Help us out with that Rob.
You’re raising a legitimate and interesting and important point, Pink.
You are right that Shiller and Pfau and Bogle hurt their credibility when they say things that conflict with other things they have said. I agree 100 percent.
I am of course going to continue to cite them. I rank Shiller as the most important investing analyst of all time, I rank Bogle second and I say that Wade has done work worthy of a Nobel Prize. I can’t very well talk about stock investing and not make reference to the giants.
Do you know the root cause of my “quandry”? Shiller and Bogle and Pfau are friggin’ HUMANS! WhaChaGonDo, you know?
They are humans and they make mistakes. That’s pretty much what it all comes down to.
The Buy-and-Hold Pioneers are heroes of mine. They are the Big Mistake Makers and yet they are my heroes. Why would that be?
Because it is easy to sit on your duff and just nod your head at the conventional wisdom and get rich doing it while it takes some fortitude to put on your Big Boy Pants and get out there in the world and mix it up and take a chance that you might get something wrong and that someone out there in the Big Bad World might notice and tell all your friends and you will look like a fool. The Buy-and-Hold Pioneers went to places no one had ever gone before and helped us all out in a big way by doing so. There wouldn’t be any Valuation-Informed Indexing today if they hadn’t done so. So, yes, they are heroes. That can never change. That’s already written up in the book. They will always be heroes for the many legitimate and powerful insights that they developed and advanced.
The difference between you and me is that you start with a premise that being found to have made an error is a horrible thing. I do not see it that way even a tiny bit. There can of course be circumstances where someone would make a mistake because he is dumb or lazy or whatever. In those circumstances, it might be fair to say that discovery of the mistake reflects poorly on the person who made the mistake.
But there are lots of circumstances in which just the opposite is so, circumstances in which the mistake is made because the person who made it was sticking his neck out for the benefit of all of us. In those sorts of circumstances, we should celebrate the discovery of mistakes. When we discover a mistake and then fix it, all sorts of new possibilities open up. It is by making mistakes that we make huge advances.
We humans start out not knowing everything. We often make mistakes because we have to choose one of two roads and we have no means of being sure which road is the right one. We try one road and, when it fails us, we go back and take the other road. And taking that other road takes us to the place where we wanted to go all along. The mistake lead us to the right place through a circuitous route. Had we remained frozen in our tracks afraid to choose one road or the other because we viewed making a mistake as the worst thing that could ever happen to a person we never would have made our way around to choosing the right road. Mistakes are good stuff when they are part of a sincere and brave effort to learn the truth!
I am 99 percent sure that Bogle has made mistakes and I love him all the same. I love him because of the many wonderful things he has taught me. I am 99 percent sure that Pfau has made mistakes and I love him all the same. I love him because of the many wonderful things he has taught me. I am 99 percent sure that Shiller has made mistakes and I love him all the same. I love him because of the many wonderful things he has taught me.
Now –
There ARE such things as bad mistakes, mistakes that make the world a worse place rather than a better place.
Death threats are bad mistakes. Demands for unjustified board bannings are bad mistakes. Advances of tens of thousands of acts of defamation are bad mistakes. Threats to get academic researcher fired from their jobs are bad mistakes.
It’s part of my job to point out those sorts of mistakes as well. I don’t enjoy that part of the job so much. But it is work that very much must be done. If I and others fail to point out those sorts of mistakes, we see more of those sorts of mistakes. That means that more people are found liable in civil proceedings. And more people go to prison. And those going to prison earn longer sentences. Not good. Not good. Not good.
The mistakes on matters of substance I will point out in 10 seconds. I try to be sure before pointing out a mistake made by a Shiller or a Bogle or a Pfau because I view these people as giants and I want to do all I can to avoid making mistakes myself and I think it makes sense to presume that the giants know what they are talking about and to indicate that they have made mistakes only when there is a great amount of evidence showing that this is truly so. But when the evidence shows that it is so, I feel comfortable pointing out these sorts of mistakes without too much fuss and bother. Pointing out these sorts of mistakes helps us all (including the person making the mistake) that it is a wonderful thing to be able to do that when there is strong evidence showing that a mistake was indeed made.
It naturally causes me a great deal more anguish to point out the other kind of mistake. It has to be done. But it hurts to do it. Pointing out those sorts of mistakes when they are made by my friends causes me to eat more cookies to dull out the pain. I don’t need to be eating more cookies! I point out these sorts of mistakes because I must. But I do it as a last resort. It’s a downer. A necessary downer if we are ever to advance in our understanding of how stock investing works. But a serious downer all the same.
So you will see me being very careful when it comes to saying that my friends Jack or Robert or Wade have committed that sort of mistake. Wade has certainly done so. He was telling a lie when he said that he thought Greaney was the hero of our discussions. Jack has certainly gone there. He behaved irresponsibly when he learned what Lindauer has done to compromise the integrity of a board with his name on it and failed to take prompt action. I am not aware of cases in which Robert has traveled that dark road. The worst I can say about Robert given the evidence that has appeared before my eyes is that he pulls his punches because he is a naturally genial person and doesn’t want to hurt people’s feelings. I think he needs to be tougher given the circumstances that prevail. But that’s the worst that I can say about Robert given what I have seen through today.
We are humans, Pink. We are going to make mistakes from time to time. If that is too horrible a reality for you to contemplate, you had better just climb back under the covers and give it up, this investing analysis business is not for you. Mistakes are part of the game we are playing and it is not a part that any of us (Rob Bennett most certainly included!) can avoid.
We are all going to make mistakes. It’s what we do when we learn about the mistakes we make that makes the difference.
Now –
There is a strange element to this particular story. The usual rule is that mistakes are discovered and then corrected in an amount of time far, far less than 33 years. The thing that is different in this particular case is that the mistake that Shiller discovered way back in 1981 has gone uncelebrated (mistakes should be celebrated because their discovery leads to huge learning experiences!) for 33 years now. What’s up with that?
It’s not because this mistake doesn’t matter much that it has gone uncelebrated and uncorrected for so long. The reality is just the opposite. This mistake has gone uncorrected because it is such a biggie. This mistake affects whether we get to retire at age 65 or not! This mistake affects whether we can avoid all future economic crises or whether our entire economic system fails. Discovery of this mistake means that we need to correct every textbook in the field. And on and on.
You’ve heard of The Company That Is Too Big to Fail? This is The Mistake That Is Too Big to Correct!
Except it must be corrected!
As a society we cannot bear the thought of acknowledging and thereby correcting this mistake. Yet as a society we cannot bear the thought of correcting the mistake either! It’s a mess!
We need to proceed with love.
That’s all I can say about the situation in which we find ourselves.
To proceed with love is to be sure always to show respect and affection and gratitude to the people who made the mistake for the great good they did us all in being brave enough to have ventured to a place where making mistakes came with the territory. And to proceed with love is to be sure not to let our friends get involved in the bad sorts of mistakes that destroy them and lots of others. We need to be as honest as we possibly can be without crossing the line and becoming uncharitable while also being as charitable as we possibly can be without crossing the line and becoming dishonest.
All you do when you point out to me that even giants like Robert Shiller have made mistakes re this matter is to impress on me once again how important it is that we all work together to make it to the other side of The Big Black Mountain. If freakin’ Robert Shiller is making mistakes re this stuff, what chance does the ordinary middle-class investor have of getting it all right? The fact that Shiller is still making mistakes is yet another sign of the huge OPPORTUNITY that presents itself to us here. This is one big mistake. It follows that the gains we are all going to enjoy as a result of correcting this mistake are going to be amazing.
The credibility thing is not a concern to me. Yes, Shiller had made mistakes. That shows that he is human. People should have known that all along. If they don’t, they need to know it now. Shiller is one of the darn humans and we had all better keep that in mind when considering any words he puts forward or we are likely going to get ourselves and our friend Robert in a great deal of trouble somewhere down the line.
Shiller makes mistakes. If that means he lacks credibility in your eyes, then he lacks credibility in your eyes. Just please be fair and accept that that means that all the other humans lack credibility in your eyes as well.
I make mistake too, Pink. I am one of the darn humans too. I should lack credibility in your eyes as well.
And of course you make mistakes. So you should lack credibility in your eyes as well.
That pretty much covers it.
I will continue to cite the humans who make mistakes because they are the best we’ve got and I am grateful for their wonderful contributions and I want to share them with all my friends. I will also continue to point out their mistakes in an effort to help them find their way to a better place.
What a quandary I face!
I wish you all good things in this beautiful New Year.
Rob
Rob, why not reach out to Shiller and form some kind of partnership with him? I mean, he’s not operating at your level, but maybe you could teach him something.
I understand that you are being sarcastic with this comment, Anonymous. But the point you are making is entirely legitimate.
There are certainly many things that I can teach Shiller, just as there are many things that I can teach Bogle (and of course just as there are many things that Bogle and Shiller have taught me). We humans learn by talking things over amongst ourselves. Shiller is like everybody else. When he fails to take opportunities presented him to talk things over with interested parties, he misses out on learning experiences that would otherwise be available to him.
Shiller has indicated that he believes in short-term timing. He has said that there are “indicators” that he will be looking at to know when to get out of stocks before the price crash that he has predicted for this year takes place. I don’t believe that short-term timing works. If Shiller would engage in a discussion of that question with me, I would put forward my best effort to persuade him not to place so much trust in his “indicators.”
It is of course possible that it would be Shiller who would be persuading me rather than me persuading Shiller. I don’t say that that couldn’t happen. But even that would be a learning experience for him. If I did the best to persuade him that short-term timing doesn’t work and he got the better of the argument, that would increase his confidence in short-term timing a bit. And for good reason.
So Shiller should be putting himself out there and engaging in discussions of all sorts of questions relating to his belief in the Valuation-Informed Indexing model. That would be a win/win/win/win/win.
I would like to trade stories with Shiller about the tactics of you Goons. My sense from a number of things he has said is that he has had many vicious attacks directed at him since he published his revolutionary 1981 findings. I would encourage him to report on those attacks in a new book. Many hold back from talking about the ugly stuff. It is viewed as “unprofessional.” What people are missing is that Shiller and others in the Behavioral Finance School must know about how the human mind deceives itself to do their best work. For 12 years now we have been generating thousands upon thousands of illustrations of the self-deception phenomenon. I could add to Shiller’s knowledge A GREAT DEAL by pointing him to materials in our Post Archives. And he could add to mine by telling me stories about how other academics have attacked him and his ideas through underhanded and nasty means.
This stuff needs to get out. When we fail to publicize the attacks, we create an environment in which we see more of them. I absolutely believe that I could add to Shiller’s understanding of the issues by talking these matters over with him in great depth.
And I could add to his knowledge of the how-to side of things a great deal by talking over with him what I have learned from the five calculators. That is Shiller’s great weakness. It is an amazing reality that he wrote the most important book ever published on investing theory and included only two paragraphs addressing the how-to aspects of the investing experience. That’s the aspect of the question that people care about the most. I believe that Shiller knows a lot more about the how-to aspect than he lets on. But I believe that he would deepen his knowledge considerably by talking things over with other interested parties.
Most importantly of all, I would like to talk over with him the role that Buy-and-Hold played in bringing on the economic crisis. Shiller predicted the crisis in his book. But when the crisis came, he kept it zipped about the role played by the relentless and reckless and ruthless promotion of Buy-and-Hold strategies for decades after the peer-reviewed research in this field showed that there is precisely zero chance that a Buy-and-Hold strategy could ever work for even a single long-term investor. I would very much like to ask him why. It could be that Shiller himself is suffering from cognitive dissonance, at least on this particular question. The best way to find out is to talk things over.
I have reached out to Shiller, Anonymous. I sent him an e-mail a good bit of time back. I’ll send him another one following the next crash (as I will send Bogle another one following the next crash).
Why doesn’t Shiller respond?
Why doesn’t every responsible person alive on Planet Earth respond when they learn about what we have done to ourselves as a society by failing to teach every investor what we have learned about how the stock market works over the past 33 years?
He is ashamed, Anonymous.
He has done more than anyone else but he is still ashamed that he has not done more.
I hope that that changes following the next crash and that Shiller and I will be working together for many years to come after the crisis is brought to an end (just as I hope that my good friend Jack Bogle and I will be working together for many years to come following the end of the crisis).
The full truth here is that your sarcasm holds you back. You should want to see me and Shiller (and me and Bogle) working together. The more we work together, the more we learn and the more you learn. You fear the idea. Because you fear what you would learn. That’s sad.
That’s something that I very much want to change. Not just for you but for millions.
And I believe strongly that my good friend Robert Shiller very much wants to change that too.
I believe that someday we will be working to make it all happen.
I sure hope so.
Please take good care, Goon friend.
Rob
Rob,
You need to correct your mistakes. Start with your “I was wrong” speech and then we can go from there. After you give the speech, I will give you your list of mistakes to correct.
Again with the sarcasm.
I say that Bogle needs to give an “I Was Wrong” speech. So I presume that what you are suggesting here is that I have not been clear re what errors Bogle has made.
His error (one that LOTS of good and smart people made) was in believing that the research showing that short-term timing does not work showed that timing IN GENERAL does not work.
There has NEVER been even the slightest indication in any study that long-term timing might ever not work or might ever not be 100 percent required. That was a MISTAKE.
It was an understandable mistake at the time. No one had ever tested long-term timing at the time when Buy-and-Hold was being developed. But Shiller published the first research showing that long-term timing (price discipline) is ALWAYS 100 percent required in 1981. That’s 33 years ago. You cannot say that the mistake remains understandable today. For at least 12 years now (and almost surely longer than that, although I cannot personally testify to things that happened prior to May 13, 2002), the 1981 finding that long-term timing (price discipline) is always 100 percent required has been COVERED UP.
Do you now understand what the mistake is that I am asking my good friend Jack Bogle to own up to, Anonymous?
When Jack comes out and says publicly in clear and firm and understandable words that there is precisely ZERO support for Buy-and-Hold strategies in the academic research, we will never again see a retirement study published that does not contain an adjustment for the valuations level that applies on the day the retirement begins. We will never again hear anyone say that a 15 percentage point change in one’s stock allocation might be sufficient at a time when valuations have reached insanely dangerous levels. We will never again see a bull market. We will never again see an economic crisis. We will never again see discussions of investing marred with death threats or demands for unjustified board bannings or tens of thousands of acts of defamation or threats to get academic researchers fired from their jobs.
Such garbage will no longer serve any purpose once everyone knows about the mistake and about how much damage it has done to millions of middle-class people and even to the confidence that millions of people hold re our free-market economic system and re our political system. This mistake is the biggest mistake ever made in the history of personal finance. It caused our economic crisis. There are now millions of people unemployed because of our unwillingness as a society to acknowledge this mistake and fix it.
Once we fix the mistake, stocks will be transformed into a virtually risk-free asset class. The Bennett/Pfau research shows that it is the belief that there is some mystical, magical world in which Buy-and-Hold strategies might work for one or two long-term investors that is responsible for 70 percent of the risk of stock investing. There is no such magical, mystical world. Stocks are just like anything else you can buy in this Consumer Wonderland. You MUST consider price when making purchases. If too many people fail to do so, the entire market collapses because it is price discipline that permits markets to work their magic.
Bogle is of course just one guy. But he is the lead proponent of Buy-and-Hold. When he gives his “I Was Wrong” speech, it will be written up on the cover of the Wall Street Journal and the New York Times. That will launch a national debate. Every blog on the internet will be writing about the mistake and how it nearly brought down our economic system and about how all of our financial futures will be looking so much better once we all gain the power to talk openly about the first true research-based strategy (Valuation-Informed Indexing, or Buy-and-Hold 2.0).
It was all a mistake, Anonymous. There was never a grain of truth to any of it. Getting the mistake fixed promptly is the most important economic/political item on our nation’s agenda today.
All of the ugliness comes to an end on the day that Bogle gives that speech. Because the ugliness serves no purpose once the mistake has been acknowledged and fixed. We ALL should be working together to persuade Old Saint Jack to give that speech by the close of business today.
That’s my sincere take re these terribly important matters, in any event.
Thanks for asking an important question (albeit in a backhanded sort of way).
And please know that I extend my best and warmest wishes to you and yours.
Rob
Why doesn’t Shiller respond?
I don’t know, Rob. I had the same problem when reaching out to the Pope after I concluded I was the second coming of Christ. I was hoping he could assist me in my quest to save the world. Why won’t he answer my emails?
Imagine me, Jesus Christ, sitting in this basement goofing off online all day! All due to the Vast Conspiracy of Shame and Ignorance (VCSI). But the Rapture is coming any day now. I expect it within the next two years. Then he’ll be answering those emails all right! We’ll be parading around the Vatican together side by side in the Popemobile! That’s when the check for $500 million arrives in the mail!
It’s all so unfair!
You hang in there, man.
Rob