Set forth below is the text of a comment that I recently posted to another blog entry at this site:
“It is dangerous to assume that historical relations are necessarily applicable to the future. There could be fundamental structural changes occurring now that mean that the past of the stock market is no longer a guide to the future.”
I am grateful to you for putting forward that statement, Anonymous. It is responsive to the challenge that I presented in the blog entry.
I will use your comment as a separate blog entry. When the blog entry appears (the next available spot is August 10, 2015), I will add a link to it in the slider that appears at the top of every page of the site. Every investor (both Buy-and-Holders and Valuation-Informed Indexers) needs to know about this comment from Shiller.
Please understand that I do not disagree with what Shiller is saying. He is saying that it would be dangerous to assume that the correlation between valuation levels and long-term returns that we have seen over the 140 years of stock-market history available to us necessarily will apply in the future. It is possible that that correlation will NOT apply. No one can look into the future. So no one can say with 100 percent certainty. As Shiller notes, there COULD be structural changes occurring now that mean that the past will not be a good guide to the future.
That’s a sound, responsible statement. If you want to add that statement to the bottom of every post that I put forward at every board and blog at which I post, I have zero problem with the idea. I think that an argument could be made that that would be a positive. People need to know about this caveat. I sure don’t want anyone changing how they invest based solely on what I say about what the historical data teaches us. I don’t want that sort of responsibility on my head.
Can you point us to a comment in which my good friend Jack Bogle says the same thing coming from the other direction? It would do my heart good to see a comment in which Jack says: “It is dangerous to assume that historical relations are not applicable to the future. It might be that the stock market will continue operating in the future much as it always has in the past. In that event, those following Buy-and-Hold strategies will be suffering devastating losses in days to come.”
That’s the other side of the story, is it not? It is possible that stocks will never again perform as they always have in the past. Point taken. It is ALSO possible that they will. Every investor on the planet needs to know this. We should all join in together to take actions to insure that every board and blog on the face of Planet Internet is opened for honest posting by the close of business today. It is not even possible to imagine any downside. Am I not right about that one?
There are two schools of thought in the academic community as to how stock investing works. There is the school rooted in Fama’s research and there is the school rooted in Shiller’s research. Both schools of thought need to be represented at every board and blog on the internet. There should be zero controversy over this. There should be a 100 percent consensus re this point.
There are millions of smart and good people who believe that Buy-and-Hold is the ideal strategy. There is a large but much smaller number who believe that Buy-and-Hold has been discredited by 33 years of peer-reviewed research and that Valuation-Informed Indexing is the first true research-based strategy. We all need to get about the business of exploring the merits of BOTH models for understanding how stock investing works.
That’s my sincere take re these terribly important matters, in any event.