Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
In September 2015 Shiller said the fair value for the Dow was 11,000. Now, with the Dow over 21,000, he says it could go up another 50%. So as a devoted follower of his every word, where do you put your money, when his words are going every which way?
Obviously Shiller’s Nobel Prize doesn’t mean he can predict the market any better than anyone else. As you have found to your great dismay and financial ruin.
I don’t follow Shiller’s every word. I think he is a giant in this field. But I of course also think that Bogle is a giant in this field. And I don’t think that there is any fair-minded person who would say that re Bogle I am “a devoted follower of his every word.” I take from Bogle what I find valuable and I am grateful for what I have learned from him. And I do the same re Shiller.
Shiller’s Nobel prize does not permit him to engage in short-term market timing any better than anyone else, in my assessment. But it sure do does permit him to engage in long-term market timing far more effectively than Bogle or any of the other Buy-and-Holders. Shiller predicted the economic crisis that began in 2008 in a book published in March 2000. Bogle sure didn’t do that. Shiller was able to do that because his research has taught him important thing about how the stock market works that Bogle has unfortunately not yet integrated into his thinking.
I agree 100 percent with Shiller that the market could go up another 50 percent. All that you need to do to see that this is so is to look at what happened in 1997, 1998 and 1999. In 1996, market prices rose to insanely dangerous levels. I took my money out of stocks in the Summer of 1996 because of those insanely dangerous price levels. And Shiller predicted in Federal Reserve testimony delivered in October 1996 that those sticking with high stock allocations despite those price levels would live to regret it within 10 years. Prices rose over the next three years by a lot more than 50 percent. I don’t see what more could be needed to prove this particular point.
My gripe with Shiller is that he focuses on the wrong point when he makes this accurate claim. Yes, stock prices could go up another 50 percent from the insanely dangerous levels where they stand today. What of it? Those who leave their money in stocks following a 50 percent increase starting from today’s price levels are going to give all that money back when prices return to fair-value levels (or to much lower levels) in the following years. So what real benefit is there in this? When Shiller focuses on this aspect of the question, he is saying words that are going to mislead a lot of people into underestimating the risks of investing heavily in stocks at today’s prices. That’s extremely unfortunate, in my view.
There is nothing wrong with Shiller saying what he said. It is a true comment and it is an important truth that he pointing to. But it is not the entire story. I would make that comment and then I would add the comment that a 50 percent price jump that starts from today’s price levels will not supply any long-term benefit to those sticking with their high stock allocations. That is the point that is poorly understood today (the vast majority of investors already appreciate that prices could go up another 50 percent from today’s levels). Today’s stock investors need to know that they should not be rooting for a 50 percent price increase, that a 50 percent price increase will hurt them in serious ways. That’s the new understanding of how stock investing works that follows from an appreciation of the “revolutionary” (Shiller’s word) research findings of 1981.
As for your comment that Shiller’s words “are going every which way,” I think there is some merit to this complaint. The answer here is to knock off the funny business. There are lots of experts in this field who would be 100 percent happy to share with Buy-and-Holders what the last 36 years of peer-reviewed research tells us all about how stock investing works in the real world. Most people don’t like to be threatened with violence and with career destruction. Rein in your most ugly emotions and you will hear sounder and clearer and more enriching and more helpful investing advice from just about everyone in this field. This extreme (and in some cases even criminal!) behavior affects what you hear from Shiller and lots and lots and lots of others. You are hurting yourself and lots of others in very serious ways when you continue to engage in your insanely abusive behavior.
All of this is my sincere take re these terribly important matters, in any event.
I naturally wish you the best of luck in all your future life endeavors, my good friend.