Set forth below is the text of a comment that I recently put to another blog entry at this site:
Question for you Rob. If Shiller’s actions indicate that his interpretation of his revolutionary research differ from your interpretation, is more likely that difference is attributable to Shiller being disingenuous for fear of being spoken ill of on finance blogs, or that you’ve mis-interpreted the implications of his work?
Thanks for asking an intelligent question, Curious.
You are referring to Shiller’s recent statement that he is today 50 percent in stocks. I am personally at zero stocks and I have said that the typical middle-class investor should today be going with a stock allocation between 20 percent and 30 percent, based on Shiller’s findings and the 33 years of peer-reviewed academic research that have followed.
It’s certainly possible that I have misinterpreted the implications of Shiller’s work. I did not go to investing school. I have never managed a big fund. I am one of the flawed humans. So people certainly need to understand that one possible explanation here is that I have messed up. I don’t think that’s the case. But then I wouldn’t, would I?
I will make the argument for the case that I have NOT messed up. I am not the person to talk to for hearing the case that I HAVE messed up. Those who believe that I have messed up should make that case.
Shiller has a long record of giving odd responses when asked about the practical implications of his “revolutionary” (his word) findings. In early 2009, he said that investors should stay out of stocks until the P/E10 value dropped below 10. We have not dropped below 10 since then. So Shiller is not following his own advice in going with a 50 percent stock allocation. Do you not find that odd? I sure do.
There’s another contradiction revealed by Shiller’s statement that he is at 50 percent stocks today. A few months ago, Shiller predicted that there will be a crash in 2014. That means sometime in the next nine months. He foresees a price crash and he is at 50 percent stocks? Does that make even a tiny bit of sense? It does not.
Shiller clearly does not know everything, Curious. I obviously love the guy. “Irrational Exuberance” is my Bible. But the guy obviously has not put all the pieces together.
You suggest that the only alternative to me being wrong is that Shiller is being “disingenious.” I don’t agree with that. I don’t think he knows all the answers and is just not revealing them to us. I do indeed think there may be some of that going on. There is a high price to be paid for speaking frankly about these matters. I believe that the Social Taboo holds Shiller back, that he does not say everything he believes because he fears the smears that would be directed at him if he did. He’s like all the rest of us in that regard.
But I also believe that Shiller does not know it all. Shiller is one of the humans and we humans learn by talking things over. We learn through give and take. We unearth puzzles and then we offer our thoughts as to the resolution of the puzzles and then we get some feedback that helps us figure out if we are on the right track or not and so on. That’s how it is done. That process is not taking place today. EVEN FOR SHILLER.
He no doubt has theories on certain questions. But until there is widespread and open and frank discussion of all these matters, he is not going to be able to do his best work. We have as a society crippled him. And that hurts us in a big way. We have also crippled Bogle, to be sure. And of course it is true that I am crippled as well. I would do better work if Shiller were being challenged on his contradictions on a daily basis and if Bogle were being challenged on his contradictions on a daily basis. I would learn from the discussions that would follow and I would be better able to do good work myself as a result. So would Bogle. So would Shiller. So would everyone else.
You challenge me daily to explain everything that goes on in the world of stock investing that seems a bit odd but you never challenge anyone else. Why don’t you start a thread at the Bogleheads Forum about Shiller’s contradictions and see if anyone there can figure things out better than I can? Then please start a similar thread re Bogle’s contradictions. Stop trying to put all the weight on me. I am just some fellow who figured out how to get his words posted to the internet. I don’t claim to be an expert. Bogle does, Shiller does. Those guys should be held to a higher standard than me and you are not today holding them to any standard whatsoever.
Yes, Shiller is afraid to speak out in perfect frankness. If he were not afraid, why would he have published a book that contains only two paragraphs on the how-to questions? Those are the questions of greatest interest to most book buyers. He refrained from addressing those questions because he fears the reaction he would get if he addressed them. It may be that he is not even personally aware of this. It may be that he tells himself some other story. But, yes, I believe that that is a big part of the explanation of the odd behavior.
But I am virtually sure that another big part of the explanation is that he has not put all the pieces of the puzzle together yet. That’s because he has not had enough discussions about his tentative beliefs to check them out and to revise them and to gain confidence in them. He’s like the vast majority of experts in this field in that respect. And it is killing us that that is so!
We should want Shiller devoting all his mental energy to these questions. And we should want that from Bogle. And we should want that from thousands of others. We start getting all the good stuff when we give ourselves permission to have open and free and frank and honest discussions on the implications of the last 33 years of peer-reviewed academic research.
I have tried for 12 years to get the ball rolling. That is my great “crime.”