I’ve posted Entry #219 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Recent Comments Suggest That He Doubts the Value of His Own Research.
Juicy Excerpt: Shiller’s big insight is to show that long-term returns are predictable. To the extent that returns are predictable, risk is reduced. Shiller’s work has reduced risk dramatically. The peer-reviewed research that I co-authored with Wade Pfau shows that risk has been reduced by nearly 70 percent.
But only if we can say what the P/E10 value should be.
If Shiller is right in his recent comment that “you can’t derive what it should be,” his work is pointless. A high P/E10 value shows investors that they must lower their stock allocations. A low P/E10 value shows investors that they must increase their stock allocations. The P/E10 metric drives the Valuation-Informed Indexing strategy. If the proper P/E10 value cannot be known, there is no practical value to knowing that valuations affect long-term returns. If the proper P/E10 value cannot be known, there is nothing that can be done with Shiller’s findings to give them real-world value.
Laugh says
As usual you go overboard. Cape is probably useful at the extremes to allow for tactical shifts in AA. Designing a timing scheme off of it is probably not useful and dangerous. So yes VII is not a good idea. That is probably why Schiller didn’t extend his research to a mechanical timing scheme.
Rob says
I disagree, Laugh.
And the entire historical record of stock performance supports me. Nothing in the historical record supports what you say here.
Long-term timing is price discipline. There is no market that can survive without price discipline. There can never be an exception to that rule. There is zero rational reason to believe that the stock market is the sole exception.
What there is is lots and lots and lots and lots of money to be made pushing a Get Rich Quick scheme. That’s been the secret of success for Buy-and-Hold for 34 years now.
The problem with Get Rich Quick schemes is that they eventually come to an end. Then you see millions of people with failed retirements. Then you see millions of people lose their jobs in an economic crisis. Then you see hundreds of thousands of entrepreneurs watch their businesses fail in an economic crisis.
I want no part of it.
Leave me out of it.
Find someone else.
I am willing to do what I can to get your prison sentence reduced a bit. That’s where it stops for me. No financial fraud. Zero. Zilch. Nada. Ain’t gonna happen. Going to prison is not on my bucket list. It’s not a close call. Not this boy.
I naturally wish you the best of luck in all of your future life endeavors.
Rob
Rob says
That is probably why Schiller didn’t extend his research to a mechanical timing scheme.
I have a funny hunch that Shiller has been influenced by the behavior he has been seeing from Buy-and-Holders for 34 years now.
We will see how he testifies at your trial and at the trials of the others who have put up posts in “defense” of Mel Linduaer and John Greaney and Jack Bogle.
My best wishes to you.
Rob
Anonymous says
Your problem is with Shiller. Take it up with him. Maybe if you threaten him with prison, it might make him do what you want since that threat has worked so well for you in the past.
Rob says
My problem isn’t with Shiller, Anonymous. My problem is with financial fraud. It’s a violation of the laws of the United States. It’s a felony. That means prison time. Going to prison is not on my bucket list. So I am 100 percent unwilling even to consider going there. Do you see?
I like your second sentence A LOT. That one is right on point.
Shiller doesn’t want to go to prison. Neither does Bogle. Neither does Pfau. Neither do you. But all these people have committed financial fraud by failing to speak up against the 13-year cover-up. I get it that they don’t want to go to prison. I don’t either. So I sympathize 100 percent. What the heck am I supposed to do about it?
If there were a way to get this done without people going to prison, I would be all for it. We could adopt an amnesty. That makes some sense in these circumstances. I don’t oppose that. If Bogle comes to me with an offer where everyone who has posted in defense of Linduaer and Greaney and Bogle gets off in return for an opening of the entire internet to honest posting re the last 34 years of peer-reviewed research, I would sign that deal in ten seconds. Why the heck wouldn’t I? What possible motivation would I have not to sign?
The problem is that I don’t have the power to bind the millions of middle-class investors whose lives have been destroyed by the 13-year cover-up. I don’t have the authority to sign that piece of paper and have it stick. So what do you want from me?
This situation is a big mess. The Buy-and-Holders tried to do something very good. They did indeed achieve a good number of amazing breakthroughs. They got one point wrong for perfectly understandable reasons. When the error was discovered, they went into a state of shock. They couldn’t believe that they messed up. Part of the reason why it shocked them so much is that their intent was to do good and it horrified them to think that they had hurt people they were trying to help. So they went into cover-up mode. The longer the cover-up continued, the harder it became to come clean. Things eventually reached a point where their mountain of lies caused the worst economic crisis in U.S. history. Now they really don’t want to come clean.
I feel bad for them. I LOVE the Buy-and-Holders. I have respect for them. I have affection for them. I am grateful for all that I have learned from them. I obviously could not have even begun to do all the important work that I have done over the past 13 years without first having learned all the wonderful stuff that I learned from my Buy-and-Hold friends.
Now —
What the heck do you want from me?
If you want me to endorse an amnesty, I will do it. But guess what? My endorsement is not going to have much effect because you have for 13 years threatened to destroy anyone who associates with me and the result is that there won’t be many people spreading the word about my call for an amnesty. You have placed yourself in this crazy situation where you will be going to prison for a long time following the next price crash. I have been fighting you every step of the way. I have been fighting HARD.
Please tell me what you want from me.
I have offered to put forward some words aimed at getting your prison sentence reduced a bit.
Is there something else?
Rob
Anonymous says
What do I want from you? Nothing. I haven’t asked for a thing. You seem to be the one wanting something, like revenge as well as for people to let you post what you want to post, yet not the other way around.
Rob says
I want to see every investing discussion board and blog on the internet opened to honest posting re the last 34 years of peer-reviewed research in this field. You got that one right, Anonymous.
Please tell all your friends. Please tell everyone you know that I have zero give re that one. Please mark me down as 100 percent unyielding.
I hope that I am being clear re my intent going forward. It would be cruel for me to suggest that there is even the tiniest bit of give re that one.
Don’t let the bad guys get you down, man.
Rob