Set forth below is the text of a comment that I recently posted to another blog entry at this site:
So, you agree that Shiller has not said the words specifically that you can use his work for long term timing.
That’s a pretty darn good question, Anonymous. I like the way you phrased this one
Shiller (and all the others) is cagey and cautious about what he says.
His words show that he WANTS to help people out. He is TRYING to get good information out to people. He has a conscience.
But he knows that millions of people have been taken in by the smelly Buy-and-Hold garbage. He doesn’t want to find himself in the spot in which Rob Bennett finds himself, with people threatening to kill his loved ones and determined to destroy his career and all this sort of thing. So he puts forward all the information that anyone needs to figure out how stock investing really works while also being careful not to state things too clearly. That way, the people who want to know the truth have access to it and the people who want to continue to live in a fantasy world feel free to do so. He stops short of making clear and definitive statements that would make the fantasies go “pop!”.
I play it in very different way. Perhaps you’ve noticed!
Bogle plays it the same way Shiller does. Bogle and Shiller don’t have the same beliefs. I am certain that Bogle has far more confidence in Buy-and-Hold than Shiller and that Shiller has far more confidence than Bogle in Valuation-Informed Indexing. But they are pretty darn similar in their use of word games to avoid stating things in a clear way that would provide actionable investing advice to those reading their words.
There was a great illustration of this in the speech that Bogle gave to the annual meeting of the Vanguard Diehards in the Fall of 2006. Bogle gave a fantastic presentation on the dangers of investing in overpriced stocks. Most of the talk was pure gold. He went on for paragraph after paragraph of top-notch, research-based stuff. Then, in the last paragraph, he said something like: “So, in conclusion, just always remember to Stay the Course!” You Goons interpreted that as an endorsement of Buy-and-Hold, which is of course precisely how Bogle was hoping you would interpret it. So you all jumped up and down. “He’s assuring us once again that the last 33 years of peer-reviewed research is garbage, that the pure Get Rich Quick approach is sure to work for the first time in history. This guy is so smart!”
You obviously didn’t say those precise words anymore than Bogle said in the first 20 paragraphs of his talk that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind. But that’s what I heard from Bogle and from you. And it wasn’t just me. John D. Craig heard the same thing. Both of us wrote e-mails to Bogle at the time congratulating him on the great speech and asking that he be even more clear in his warnings about the dangers of over-investing in stocks at those prices. Bogle did not respond to either of us.
Say that you bring in your car for its annual inspection. Say that the guy who looks at it sees nothing wrong with the car. He is pulled in two directions. The honest thing is to say “this car is fine.” The dishonest thing is to say that you need repairs. He makes more money if he says the car needs repairs. What stops him from doing the dishonest thing?
The biggest force pushing him to be honest is that he wants to have a good reputation. If he cheats too much, word will eventually get around and his short-term profits will be transformed into long-term losses. The other force is that, if he goes too far with the dishonesty, he will eventually cross legal lines and may end up in prison.
There IS dishonesty in car inspections. Bad stuff happens in the car inspection field. But as a general rule the bad stuff is limited. People don’t want to develop bad reputations and people don’t want to go to prison and the people who bring their cars in don’t want to get ripped off. So there are limits as to how far the bad stuff can go.
The problem we have in the investing advice field is that the dishonest stuff has gone so far during the Buy-and-Hold years that the field is today 100 percent corrupt. There’s a concept in the law of “Standard industry practice.” If you go outside of standard industry practice, that is used against you. In the investing advice field, the standard industry practice is to ignore the last 33 years of peer-reviwed research and to pretend that Buy-and-Hold can work. The standard industry practice is financial fraud! It’s those who post honestly who are accused of offering “dangerous” advice and who get kicked off of discussion boards because they make those pushing the Buy-and-Hold garbage look bad.
One reason why this has happened is that there is a power imbalance. The Wall Street Con Men have an awful lot of money and power and influence. So they get away with acts of dishonesty that no one in any other field could get away with.
Another factor is that the fraud does not become evident until a good number of years have passed. If car-repair fraud could not be discovered for 10 years or longer, there would be a lot more car-repar fraud!
Yet another factor is that most stock investors WANT to be conned. Most of us are worried about whether we will have enough to retire or not. The Buy-and-Holders exploit this fear by telling us that we have three times what we really have and then taking credit for the great results! Did you ever hear Taylor Larimore brag about how following Jack Bogle’s investing advice permitted him to live in “the house that Jack built”? Jack ain’t about to rebuild the house when Taylor loses it in the next price crash. But so long as the con remains unexposed, Taylor feels like Jack is his good friend. It’s the same thing Bernie Madoff did. The Get Rich Quick impulse is a powerful impulse. Con men are always going to be trying to exploit it.
People who offer investing advice pursue two goals at the same time. They want to tell the truth because they have consciences and they care about their clients and readers and all that sort of thing. But they also want to turn a buck! To help their readers, they need to promote Valuation-Informed Indexing. But to turn a buck they need to promote Buy-and-Hold. So they do both! They give speeches in which they reveal important truths in seven or eight paragraphs of prose. Then in the final paragraph they sum it all up by saying “now just be sure always to do the precise opposite of all that I have said in the first eight paragraphs. Buy-and-Hold rules!”
That makes all of their clients and readers who have become addicted to the Get Rich Quick garbage happy. They ignore the first eight paragraphs and focus on the conclusion. They say to themselves: “I KNEW that Buy-and-Hold was the answer! I knew the last 33 years of peer-reviewed research was garbage! Now I am sure. This salesman fellow just told me that stocks are worth buying at any possible price! How smart I was to sense that all along! I am really something! I love this salesman guy. I only wish that I had more money to invest in this asset class paying a negative long-term return! So long as I can lose money every year, I should be able to retire in no time! This Get Rich Quick stuff is AMAZING.”
Yeah, sure it is.
Shiller is under the gun. So is Bogle. So is EVERYONE who works in this field.
It won’t be a problem following the next price crash because you Goons will no longer be singing the praise of the Wall Street Con Men after you have lost most of your retirement money., At that point, it will become acceptable for the “experts” (experts in marketing!) in this field to tell the truth and those who don’t go to prison will be happy to do so. Once all the textbooks have been corrected, there is no reason to believe that anyone will ever fall for the Buy-and-Hold garbage again. This is the first ELECTIVE economic crisis we have experienced. This is the first one that has come AFTER the peer-reviewed research was published showing us what really works. So I presume that we will be moving on after the next crash.
For now, though, people like Shiller and Bogle are in a bind. Do they destroy their careers by telling the truth? Or do they save their careers by telling more lies while mixing in a lot of good, solid, true stuff as well? Shiller tells as much truth as he feels he can get away with. But, no, he does not tell the truth in as plain and clear and bold a way as he needs to if he wants to make Valuation-Informed Indexing the dominant model, as I do.
I want to bury Buy-and-Hold thirty feet in the ground, where it can do no further harm to humans and other living things. Shiller WANTS to do that too but not enough to be willing to say things in the way he would need to say them to get the job done and to thereby bring a pile of abuse down on his head from all the people who have been tricked into thinking Buy-and-Hold can work.
Here are two statements:
1) Timing never works; and
2) Short-term timing never works but long-term timing always works and is always 100 percent required.
The first statement is the lie that Buy-and-Hold advocates tell their readers.
The second statement is what the last 33 years of peer-reviewed research reveals as the reality.
Shiller has devoted his entire life to helping people understand that the second statement is the true one. But, yes, he has lied in many of his public statements because he doesn’t want his career destroyed for telling the truth about stock investing before it becomes fashionable to do so.
Sue the man, you know?
My job is to tell people why we are in an economic crisis and why millions of people are on their way to suffering failed retirements. I need to tell both sides of the story. Shiller is a giant, a good man and a smart man. And Shiller is afraid of what would be said about him by the Buy-and-Holders if he were to state the truth as clearly and plainly and firmly as I do.
That’s your fault. He WANTS to tell the truth. After the next price crash, he will. Then we will all pull together to rebuild our broken economy.
I hope that helps a bit.