Set forth below is the text of a comment that I recently added to the discussion thread for another blog entry at this site:
If there were hundreds of millions to be made from Shillers model, why doesn’t Shiller himself promote that and reap those millions?
This is a good question.
And of course the thought being expressed here applies not just to Shiller. It applies to everyone working in this field. The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. We have seen more forward movement in the past 34 years in the investing advice field than we have seen in the computer technology field. People have made BILLIONS in the computer technology field over the past 34 years. Why wouldn’t people want to make billions in the investing field by teaching the millions of people who want to learn how stock investing works about all of the amazing insights that follow from Shiller’s “revolutionary” (his word) research findings of 1981?
Here’s a link to a commentary that Rush Limbaugh offered yesterday re the Donald Trump phenomenon:
There are rules in The Game in every field of endeavor. Everybody is talking about “The Establishment” in the political realm. We need an establishment. The establishment sets the rules by which all business is conducted. If we didn’t have an establishment, we would have chaos. Every voice would get equal recognition and no one would have any means to distinguish which voices are worth listening to and which voices are not worth listening to. Establishments make the rules that permit us to make sense of things and not to waste tons of time trying to do so. Establishments are a good thing and a necessary thing and exist in every field and in every time. There is a sense in which to say that you are “anti-establishment” is to say that you are anti-human because humans always set up establishments. Some form of establishment governs all human interactions.
Establishments sometimes need to be taken down. Establishments can become overly rigid. The Soviet Union was a great example of this. The establishment had become so rigid that the society that it was governing could not advance. The human spirit was being crushed. The establishment had to go. The establishment collapsed. It was replaced by a new establishment better suited to the current-day realities. When one establishment falls, a new establishment rises. There’s always an establishment of some kind or another setting the rules of the game that all players of the game must follow.
Shiller shattered our prior understanding of how stock investing works. He tore up the rulebook. He overturned the establishment. This is why I so often point out that Shiller referred to his 1981 finding that valuations affect long-term returns as “revolutionary.”
If `valuations affect long-term returns, stock investing risk is not static but variable. If stock investing risk varies with changes in valuations (price), investors must change their stock allocations in response to big valuation shifts to have any hope whatsoever of keeping their risk profiles roughly constant. If the market were efficient, Buy-and-Hold would be the ideal strategy. If valuations affect long-term returns, Buy-and-Hold is the most dangerous strategy ever concocted by the human mind; it will always cause an economic crisis and in many cases it will bring on a depression. If Shiller is right (and we now have 34 years of peer-reviewed research showing that he is), Buy-and-Hold is poison.
There is a mountain of money to be made showing millions of middle-class investors that Buy-and-Hold is poison and describing to them the first true research-based strategy — Valuation-Informed Indexing, which is Buy-and-Hold corrected for the one mistake that the Buy-and-Holders made (their false conclusion that it is not necessary to exercise price discipline when buying stocks). There is a huge incentive for Shiller and lots and lots of others to make billions telling the truth about how stock investing works to the millions of investors who very much want to know the truth about how stock investing works. So your question is a perfectly reasonable one.
The answer is —
The investing advice establishment does not want this to get out!
If Shiller had published his revolutionary findings in 1961 instead of 1981, we would all be Valuation-Informed Indexers today. There is no evidence supporting Buy-and-Hold. 100 percent of the data supports Valuation-Informed Indexing and 0 percent of the data supports Buy-and-Hold. Everyone wants to reduce the risk of stock investing by 70 percent. Everyone wants to be able to retire five to ten years sooner. The value proposition here is off the charts. Everyone on the planet wants to know about Valuation-Informed Indexing and every investing advisor wants to help people by teaching them about Valuation-Informed Indexing and to get rich doing it. Why wouldn’t they?
The problem is that Buy-and-Hold was developed as a result of research that was published in 1965 that SEEMED to show that no form of market timing is required. Between 1965 and 1981, an establishment was formed around the promotion of Buy-and-Hold, which was at the time THOUGHT to be a true research-based strategy. When Shiller’s research was published, the establishment in this field made clear to all who tried to tell people about the implications of his revolutionary findings that their careers would be destroyed if they dared to “cross” all the people who had built careers pushing the smelly Buy-and-Hold garbage (which was of course not known to be smelly garbage at the time this establishment was formed).
Shiller WANTS to tell the truth about what the last 34 years of peer-reviewed research shows. So does Bogle. So does Pfau. So does Kitces. For that matter, so does Lindauer and so does Greaney. We ALL want to do good work in this world. We all want stock investing to be less risky. We all want to be able to retire early. The advance from Buy-and-Hold to Valuation-Informed Indexing is such a huge advance that it is impossible to imagine how there could be one person on the planet who would want to be associated with Buy-and-Hold rather than Valuation-Informed Indexing, all else being equal.
Our problem is that as of today all else is not equal.
Tell the truth about the dangers of Buy-and-Hold and your career will be destroyed. The lives of your loved ones will be threatened. Internet Goons will follow you everywhere you post on the internet and do all in their power to destroy your reputation. And few will speak up in your defense. Telling the truth about what the last 34 years of peer-reviewed research shows us about how stock investing works in the real world is career death in the year 2016. The investing advice establishment will not permit it.
Just like the Soviet Union, the establishment that today props up Buy-and-Hold is going to fall. Persuading millions of people to follow a pure Get Rich Quick approach (which is what Buy-and-Hold is if valuations affect long-term returns) has been a catastrophe. It has caused an economic crisis. It has put millions on a path leading down the road to failed retirements. It has caused millions to become unemployed. It has caused hundreds of thousands of businesses to fail. It has caused a loss of confidence in our political system on both the left and the right. Buy-and-Hold is pure garbage. The establishment props it up to this day. But that establishment will fall as the consequences following from the promotion of the pure Get Rich Quick approach grow more and more dire.
Either we open every discussion board and blog to honest posting re the past 34 years of peer-reviewed research or our economic system collapses. And, if our economic system collapses, our political system will collapse not much later. This massive cover-up is killing us. So the establishment propping it up has to go. When the current establishment collapses, all of the good stuff starts to happen. The good news here is 50 times more good than the bad news here is bad. So we very much should all be looking forward to the collapse of the current investing-advice establishment.
That said, we also need to recognize the long list of genuine and important contributions that have been advanced by this establishment. We know things today about how stock investing works that we didn’t dream of knowing back in 1965, when this establishment was born. The establishment is comprised of good and smart and hard-working people. We wouldn’t have Valuation-Informed Indexing if not for the good work done by these good people. We owe it all to these people. We need to recognize that for this transition to be a truly good one. We want to proceed in a balanced way.
Shiller and the lots and lots of others will be reaping the millions once we act as a society to bring today’s establishment down. We all want the same things. We all want to work together and we all will once we make together to the other side of The Big Black Mountain. We are on the one-yard line today. We need to make one more successful pass and then all the bad stuff comes to a complete and total stop and all the good stuff becomes available to each and every one of us.
It’s a process, Anonymous. It takes time for the collapse of one establishment and its replacement by a new establishment promoting the new understanding to play out. We are far along in the process but we are not yet quite in the end zone. We all need to be doing everything that we can do to get that ball into the end zone.
This is how our system works. The reason why our system is such a great one is that it contains the flexibility needed for existing establishments to be torn down and replaced by new ones more reflective of current-day realities. Our story is the story of the collapse of the establishment that promoted Buy-and-Hold and its replacement by the establishment of the future, the establishment that will promote the first true research-based strategy, Valuation-Informed Indexing.
These are exciting times.
Hang in there, man. It gets better. A LOT better.
I am sure.