Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“presuming that Shiller is right that 50 percent of your stock portfolio is the product of irrational exuberance”
Shiller would be very surprised to hear that he said that. Because he never did. You interpret Shiller like a terrorist interprets Islam. Using and perverting a good name to suit your own foul agenda.
His entire book says that. The title of the book is “Irrational Exuberance.”
If Shiller is saying precisely what Fama is saying, then why did the New York Times article reporting on awarding of Nobel prizes to both of them on the same day comment on how strange it was that two economists saying opposite things about how stock investing works were both being given the highest honor in the field on the same day?
Shiller is a friendly guy. Bogle could invite him to a session at the Bogleheads Forum where you could ask him what he thinks re all these matters. Does Shiller think that the safe withdrawal rate is always the same number or does he think that it is a number that varies with changes in valuation levels? Does Shiller think that the loss of trillions of dollars in spending power caused by the crash of 2008 (which was caused by the bull market of the late 1990s) was the primary cause of the economic crisis? Does Shiller believe that we will be returning to fair-value P/E10 levels in the not-too-distant future?
ASK HIM! That’s the best way to find out if you really want to find out.
You’ll have to ditch the death threat garbage for a few days. I doubt very much that he is going to tolerate that garbage. If you want to know the answers to your questions, you will treat him with a measure of respect. And, if you treat him with a measure of respect, he will be willing to answer your questions.
You don’t want to know, Anonymous. That’s been the bottom line here going back to the first day. You want to believe that the numbers on your portfolio statement are real. So you don’t want to know about the 37 years of peer-reviewed research showing that overvaluation is the product of irrational exuberance, not economic realities. You hate me because I make that point over and over again in clear and simple ways. I don’t do it to hurt you. I think you are better off knowing the realities. I accept that you are free to disregard anything that I say — that’s up to you. But I insist on my right (and the right of all my fellow community members) to say what I believe without first having to ask “Mother May I?” of the Buy-and-Holders.
I say that Shiller was awarded a Nobel prize because he showed the stock overvaluation is caused by irrational exuberance, not economic realities, and because that finding stands everything that we once thought we knew about how stock investing works on its head. Why do you believe Shiller was awarded a Nobel prize, Anonymous? Please identify how in your view he changed our understanding of how stock investing works in a significant enough way to justify the awarding of a Nobel prize in economics.
Rob
“Does Shiller believe that we will be returning to fair-value P/E10 levels in the not-too-distant future?”
He did in 1996. Wrote a whole paper about it. And he gave himself ten years to be proven right. But he was still wrong. So now he won’t answer that question. Maybe that’s why you like him so much. You never answer questions either. Because you believe if you never answer a question, you can never be proven wrong. When’s the last time you provided even a hint of new information about VII, or your financial situation, or your family, or anything else?
You won’t answer that, so I will. It’s been many years.
I agree that Shiller was proven wrong re his 1996 prediction.
I still believe that he has a lot to offer. I believe that he has a mountain of good stuff to offer. I believe that he merited the Nobel prize that he was awarded.
I believe that every person who has money to invest should be informed that Shiller got that prediction wrong. I think it is an important fact and that people need to know it. Some will decide not to follow Shiller’s advice as a result. That’s their right. Each person gets to decide how to invest his or her own money. If people want to decide that the one thing that Shiller got wrong is more important than the many important things that he got right that no one else got right, it’s up to them.
I think that Greaney got the safe withdrawal rate wrong. And I think that people need to know that too. And it’s not just Greaney. The authors of the Trinity study also got the SWR wrong. And Bogle got it wrong indirectly. He allows his name to be used at a discussion board that encourages people to use the old safe-withdrawal-studies to plan their retirement even though it has been public knowledge that those studies do not contain valuation adjustments for 16 years now. Bogle has not spoken up about this or taken steps to remedy the situation. That’s a wrong that Bogle has committed that is 500 times worse than the mistake that Shiller made, in my assessment. Shiller doesn’t deny his mistake. People can learn from it. Bogle hasn’t even acknowledged his mistake in failing to speak up about the errors in the Buy-and-Hold retirement studies for 16 years now.
We all make mistakes. Shiller has made them. Bogle has made them. I have made them. You have made them. The trick is to LEARN from our mistakes. That’s how we get better at things over time. Shiller presented us with a wonderful opportunity to get better at stock investing 37 years ago. To a large extent we have squandered that opportunity because speaking clearly about what we learn from Shiller means pointing out that our Buy-and-Hold friends got some important things wrong back in a day when not all the research they needed to become fully informed was available to them. I think that’s unfortunate, as unfortunate as unfortunate can be.
I think it comes down to this, Anonymous — Did our Buy-and-Hold friends want to get it right when they started out? I think they did. I think they made a mistake. And I think that, if they were thinking clearly, they would have wanted to correct that mistake as soon as they learned about it, 37 years ago. I think that those of us who love the Buy-and-Holders for all of the amazing contributions they have made should be doing all in our power to help them find their way back to a better path as soon as possible. Our Buy-and-Hold friends want to help people and we all should be helping them get back to a path where they can do that again.
Shiller is a flawed human. But he also is a great human. Bogle is a great human. But he also is a flawed human. It’s only when we recognize both sets of realities that we can engage in positive learning experiences that permit us all to live better and richer lives from that point forward.
That’s 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 dear Goon friend.
Mistake-Prone (and Mistake-Acknowledging) Rob
“Some will decide not to follow Shiller’s advice as a result.”
Shiller doesn’t give advice. Except to not to use PE/10 for market timing. That advice he has given multiple times. You seem to think that if people keep asking him that same question, eventually he’ll give a different answer.
Do you ever stop to ponder why you think the way you do?
He’s already given a different answer! He said in 1996 that smart investors should lower their stock allocations because prices were too high. He was right! No, we didn’t see a crash within 10 years. He was wrong about that detail. But the thrust of what he said — that high prices make stocks more risky — was very, very, very right. There’s 150 years of historical return data showing that.
I think the way I do because I have been trained all my life to determine what logically follows from a set of principles. Shiller was awarded a Nobel prize because he showed us that valuations affect long-term returns. If that’s so, it is a logical impossibility that the safe withdrawal rate is the same number at all valuation levels. If every person on the planet believed that the safe withdrawal rate is always the same number, it would still not be so. And it’s not every person on the planet that believes that. It’s about 90 percent of the population. 10 percent of the population agrees with me.
Most are afraid to speak up about what they believe too clearly because they know that it makes Buy-and-Holders angry to hear about the far-reaching implications of Shiller’s Nobel-prize-winning research. I don’t enjoy making the Buy-and-Holders angry any more than anyone else does. But I believe that my Buy-and-Hold friends possess a sincere desire to know how stock investing works as well as a sincere belief that looking at peer-reviewed research can help us learn what we need to learn. So I share with them what I have come to believe. If I were to fail to do that, I would feel that I was disrespecting them and letting them down. I don’t want to go there. I fully accept it when they elect to ignore what I say — whether to buy into what I say or not is their choice. But I try to always say what I truly believe because I see that as my obligation to my friends and all Buy-and-Holders are my friends.
I think the way I do because I think learning experiences are a positive, Anonymous. You have heard me say that “I love my country.” That’s the bottom line for me. Well, our country is all about learning experiences. We wouldn’t have a stock market that produces 6.5 percent real gains if we didn’t encourage learning experiences. It’s all the learning experiences that we have enjoyed over the years that produced the profits that are behind that wonderful 6.5 percent number.
I love this country. I believe in learning experiences. If we ever get to a day where we are so reluctant to acknowledge that there might have been a time that we made a mistake re something, then all our learning experiences are over and we are going down. We are temporarily in a place where as a society we have not been able to work up the courage to acknowledge that we didn’t always know everything there is to know about how stock investing works. But I sure don’t see any reason to believe that that is a permanent reality. We are in the process of working up the courage to move to a far better place, a place that deep in our hearts all of us want to live in.
Does that help at little bit?
Let’s all work together to persuade Shiller to offer more advice, you know? Let’s all help ourselves and millions of others in very, very big ways.
Any downside? I sure am not able to imagine any.
Question-Asking Rob
“He’s already given a different answer! He said in 1996 that smart investors should lower their stock allocations because prices were too high.”
And 50-some years ago you believed in the Easter Bunny. Eventually you learned you were wrong. So you changed your mind. Will you change it back again? No, and neither will Shiller.
History has proven Shiller was wrong. You were wrong to listen to him, with disastrous consequences. That’s a shame, but there’s no going back. Even if he did change his mind, how would that help you? You’d still be dirt poor.
Are you okay with waiting to see how things play out in the days following the next price crash, Anonymous.
I believe that the last 37 years of peer-reviewed research is legitimate research. I believe that Shiller merited his Nobel prize. I believe that valuations affect long-term returns. I believe that Greaney “forgot” to include a valuations adjustment in his retirement study.
Time will tell the tale, you know. If Shiller is wrong, then nothing I have said makes a lick of sense. If Shiller is right, there are going to be millions of middle-class people seeking an explanation of what happened to most of their retirement money. I can tell the story and I am happy to do so.
We’ll see.
I wish you all good things, in any event. Does that help at all?
Story Telling Rob
“Are you okay with waiting to see how things play out in the days following the next price crash”
No. I don’t believe in sitting around waiting for things over which I have no control. That’s the definition of a wasted life. Carpe diem, nincompoop.
Okay, Anonymous.
I do wish you all the best that this life has to offer a person, in any event.
Nincompoop Rob