Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“It all comes down to whether Shiller’s Nobel-prize-winning research is legitimate or not. ”
I don’t think even Shiller would agree with you. Nor would Shiller agree with your interpretation of his work.
I think you’re wrong.
Now, I’ve said a lot of things over the course of the past 17 years. I’ve written hundreds and hundreds of articles on Valuation-Informed Indexing. It seems entirely possible to me — likely, even — that Shiller would not sign on to some of the things that I have said, You know what? That’s healthy. That’s what we should want to see. Shiller has a different brain from mine and he has lived through different experiences. It would be extremely weird if he signed onto every word that I have ever put forward. So we shouldn’t expect that.
But we should all want to know the details. Which we the points re which Shiller agrees with Rob Bennett? Which are the points re which Shiller disagrees with Rob Bennett? Which are the points re which Shiller generally but not entirely agrees with Rob Bennett? Which are the points re which Shiller is not sure what he thinks about what Rob Bennett has said because he has not given the matter enough thought just yet?
We all need to know the answers to those questions. Where Shiller says that he agrees with me, that would give me some comfort that I am on the right track and make me feel more comfortable sharing the ideas far and wide. Where Shiller says that he thinks that I am wrong, that would prompt me either to change my idea so that I can win Shiller’s endorsement or to develop a better explanation of the idea as it exists so that I can more effectively persuade him. Shiller would of course be trying to persuade me too in cases where he thought that I was wrong. His efforts to develop more effective arguments would force him to think through matters more carefully and further refine and develop his own ideas. And then entirely new ideas would pop out of his brain as a result. Which of course would work to the benefit of each and every one of us, Buy-and-Holders and Valuation-Informed Indexers alike.
Opening up every site on the internet to honest posting re the last 38 years of peer-reviewed research in this field is a win/win/win/win/win, Anonymous. It’s not possible for the rational human mind even to imagine any possible downside. We are looking at the biggest advance in our understanding of how stock investing works ever achieved in the history of investment analysis.
The only hold-up for 17 years now has been that you Goons think it will be embarrassing for Greaney to acknowledge that the retirement study posted at his web site truly does not contain an adjustment for the valuation level that applies on the day the retirement begins, just as that nasty Rob Bennett noted in his famous post from the morning of May 13, 2002. What do you think Shiller will say re that one? Thousands of people have looked at the Greaney study over the past 17 years and not one has been able to identify where he put the valuation adjustment. I have a funny feeling that Shiller is not going to be able to identify one either. Gee, maybe it’s not such a great idea to open the entire internet up to honest posting re the last 38 years of peer-reviewed research in this field afterall.
We humans learn by talking things over with each other, Anonymous. That is how it is done. We venture forward with thoughts, we get feedback from other humans who possess different educations and different sets of life experiences and we refine our thoughts in response to the feedback so that over time they get better and better and better and better and better. That’s why our economic system has been sufficiently productive to support an average long-term gain of 6.5 percent real in the stock market for 150 years now. That 6.5 percent gain is the result of thousands and thousands and thousands of conversations that we are always having on thousands of different subjects in an environment in which it is universally understood that we are all permitted and encouraged to contribute our two cents and see what happens as a result.
That process broke down in the investment advice field 38 years ago. Thousands of good and smart people had come to the conclusion that Buy-and-Hold was the answer and had developed well-paying careers promoting the ideas that follow from a belief in Buy-and-Hold. Then this guy from Yale showed up and blew the entire thing to pieces intellectually. He published peer-reviewed research showing that the core idea of the Buy-and-Hold project was in error (stock prices are not developed via rational reactions to economic developments but via shifts in investor emotion). The normal thing would have been for us to have at that time launched a national debate aimed at determining which of the two models for understanding how stock investing works. It didn’t happen. The people who had built careers centered on a belief in Buy-and-Hold reacted not in the best interests of the people of the United States and not in accord with the principles on which our economic and political systems are built but pursuant to a desire to protect their turf.
And they have been killing us ever since. They have put millions of people at risk of suffering failed retirements. They have caused hundreds of thousands of businesses to fail. They have caused millions of people to lose their jobs. They have caused political frictions to grow. They have caused discussion boards to be burned to the ground. They have put a number of Goon posters at grave risk of being sent to prison in the days following the next price crash. They have caused us to miss out on the insights that would have been set forth in hundreds of books that would have been published if the people who had the desire and intelligence needed to publish them had not been afraid of what would be done to them by the Buy-and-Holders if they dared to tell others in clear and firm and convincing ways what their minds told them about the subject of how stock investing works.
If Buy-and-Hold cannot be questioned, our economic system cannot survive.
That’s the bottom line. We cannot continue to live as we have lived in the past if the embarrassment felt by the Buy-and-Holders over their 38-year cover-up has grown so great that they cannot bear ever again to permit honest posting re these matters. I love my country. I favor the idea of permitting honest posting in the investment advice field, just as we permit it in every other field of human endeavor. I believe that the laws against financial fraud are good and necessary laws. I favor reasonable enforcement of them in defense of the people of the United States, who need to gain the power to talk over the “revolutionary” (Shiller’s word) research findings of the past 38 years before even more damage is done by this massive act of financial fraud.
I love my country, Anonymous. So I believe that we will get to the other side of The Big Black Mountain. When we get to the other side, I will find out what Shiller thinks of every investing insight that I have advanced over the past 17 years. And I will learn a lot. And so will Shiller. And so will all the people listening in. Good. That’s the way it is supposed to work.
You will learn too. There’s a good chance that any learning you do will be done from a prison cell. Still, it’s better to learn from a prison cell than not to learn at all. I am happy that the amazing things that we are all going to see once we bring this massive act of financial fraud to a full and complete stop will work to the benefit even of the Goons who led the effort to bring us all down. It’s nice to think that there is something so good in this world (our economic and political system) that it brings ALL good so long as it remains in place.
I believe that Shiller will sign on to most of what I have said when we have all gained the freedom to talk about these matters freely and openly and honestly. I also believe that he will probably find a few areas where I went a bit off the tracks. And I very much look forward to learning about what those areas are so that I can make fixes. That’s how it works. That’s the beauty of our system when it is being shown the respect that it merits.
My best wishes to you, Goon friend.
Patriotic Rob
Does Shiller even know you exist? If so, why hasn’t he reached out to you?
That’s a very good question, Anonymous. Shiller should be involved in this. Getting Shiller involved would be an obvious way to resolve matters. If Shiller said “Rob Bennett raises some excellent points and I do not think that he should be banned from participating at even a single site,” that would obviously help my case. And if Shiller said “Rob Bennett sounds like a dangerous nutcase,” that would obviously help your case. It is my belief that both sides should want to hear Shiller’s input. It is also my belief that, if both sides requested his input in a civil and respectful manner, he would be willing to provide it. So it is my recommendation that we do that.
John Walter Russell once wrote to Shiller to ask for help with a technical matter re the Shiller data-set. Shiller responded to that question in a helpful manner. i contacted Shiller once or twice (I believe that it was twice but I am not willing to swear to that without spending some time checking my records) to let him know about the stuff that has been going on for 17 years now and to in a quiet way ask for his help. He did not respond to those e-mails.
Shiller’s lack of involvement sums up the entire problem we face. Shiller used the word “revolutionary” in the subtitle of his book to describe his new understanding of how stock investing works. And he was awarded a Nobel prize for his research. So clearly he changed our understanding of how stock investing works in fundamental ways.
I am not able to imagine even a remote possibility that Shiller believes that the safe withdrawal rate is always the same number. If valuations affect long-term returns (Shiller’s research shows this), then stock investment risk is not a constant but a variable. The safe withdrawal rate is a risk assessment tool. So, if Shiller’s understanding of how stock investing works is legitimate, the safe withdrawal rate is a number that VARIES, not a number that is constant. That is inescapable ABC logic.
So, if Shiller believes in what I have been saying for 17 years now and if he knows that I exist (he should since I have contacted him and I know that he reads unsolicited e-mails because he read the one from John Walter Russell), he should have put forward a statement saying that “I agree with Rob Bennett that the safe withdrawal rate is a number that varies with changes in the valuation level.” That statement would help a great deal.
But leave me out of it. Say that I never once commented on safe withdrawal rates. Shouldn’t Shiller have addressed the question regardless? People at the Motley Fool board were using Greaney’s study to plan their retirements. If there is 38 years of peer-reviewed research showing that it is not possible to calculate the safe withdrawal rate accurately without taking valuations into consideration, should’t Shiller have spoken up long before I did? It’s a pretty darn serious thing to have one’s retirement fail. Shiller certainly should have spoken up.
And we can leave Shiller out of it too. Say that for some reason Shiller did not speak up. Shouldn’t people who believe in Shiller’s work have spoken up? How about the people who awarded him the Nobel prize? Shouldn’t they have said something? How about Shiller’s students at Yale? Haven’t any of them taken the time to realize that the Buy-and-Hold retirement studies get the numbers wildly wrong and, if they have, why the heck haven’t they spoken up?
These are all good questions and they are all hard questions. Shiller OBVIOUSLY should have spoken up. People who believe in Shiller’s work OBVIOUSLY should have spoken up. On safe withdrawal rates. And on scores of other critically important investment-related topics. We need to launch a national debate on these matters. The only way to get a debate going is for people to speak up. There is no other way. So people MUST speak up.
The reality, as you know, is that few people speak up. A few people have spoken up in limited ways. Bill Bernstein said in his book that the Buy-and-Hold studies get the safe withdrawal rate wrong. But he didn’t offer much follow-up. He didn’t try to publicize the matter as a means of protecting the people who used bad numbers to plan their retirements, as I have. Bogle advanced a statement indicating that he thought Valuation-Informed Indexing can work. But he put it in a form that made it come across as a sort-of foot-dragging endorsement of the concept. Bogle certainly did not say “Valuation-Informed Indexing works!” with an exclamation point, like Wade Pfau did.
There are scores and scores of examples of the same general phenomenon. Lots of people want to be associated with Valuation-Informed Indexing in a very limited way but they do not want to have the level of abuse that has been directed at me directed at them. So they offer tentative, limited, one-time endorsements. Those sorts of endorsements do not possess the power needed to get the national debate that I believe we desperately need to get launched.
I believe that the underlying problem is that Shiller’s advance is so big. If he had discovered some small thing, the Buy-and-Holders all would have reacted by thanking him and making the change needed and everyone would be happy. But showing that stock prices are determined by investor emotion rather than by rational assessments of economic developments is like discovering that it is the earth that revolves around the sun rather than the sun that revolves around the earth. People just cannot process that change. So we have been stuck for 38 years in this strange place where the dominant model for understanding how stock investing works has been discredited by new peer-reviewed research but where one becomes a social outcast if one dares to draw attention to this terribly important reality.
All that you have to do to see how this weird state of affairs is maintained is to read Shiller’s book. Irrational Exuberance is in my view the best book ever published on how stock investing works. But the strange reality is that there is not one word in it that tells people how to go about investing their money! And that’s what people who buy investing books want to find out when they buy them! Shiller wanted to avoid the red-hot controversies that I have provoked over the past 17 years. So he took a pass on all of the how-to-invest questions; those are the ones that the Buy-and-Holders don’t like being questioned on. So Buy-and-Hold remains dominant on the how-to questions nearly four decades after the research was published challenging the core premise of the Buy-and-Hold Model. It’s a mess!
I would like to hear Shiller address himself to all the questions that I have raised. I believe that he will do so in the days following the next price crash. Because I think that the tensions will grow sufficiently intense at that time that he will have no choice but to do so. It may seem safer to address those issues when people are no longer counting on Irrational Exuberance money to finance their retirements (the Irrational Exuberance money will have disappeared from people’s accounts in the days following the next crash).
I think it would be better to address these questions today. I believe that people are going to be pissed about the losses they have suffered in the days following the next price crash and they are going to get even more pissed when they learn that the people who get paid big salaries to know about this stuff have known for 38 years that major challenges have been raised to Buy-and-Hold. So I think we have as a society created a volatile situation, not just economically but also politically. But a decision to go forward with the national debate is a decision that we need to make as a society. We all get a vote. I get one vote, just like everybody else, and I have obviously been getting outvoted over and over again over the first 17 years of our discussions.
Rob
“i contacted Shiller once or twice (I believe that it was twice but I am not willing to swear to that without spending some time checking my records) to let him know about the stuff that has been going on for 17 years now and to in a quiet way ask for his help. He did not respond to those e-mails.”
Have you published that email here? You seem to publish most of the emails you send to well know people.
I did. It was not recently. It was a number of years back. My guess is that I would have filed it under the “Rob E-Mails Asking for Help” Category at the blog. I suppose that it is possible that I put it under the “VII and Robert Shiller” category.
Rob
Since Shiller did not respond, he clearly did not see any value in what you had to say.
I certainly do not agree.
All of my work follows from Shiller’s research findings. For Shiller not to find value in my work is for Shiller not to find value in his own work. And, if Shiller stopped finding value in his own work, he would stop doing it. So I feel certain that Shiller sees value in my work. It may be that, if he offered comments on my work, he would not agree with everything that I have said. That certainly seems possible and even likely. But that’s different. If he were to say that there are things that he agrees with and things that he disagrees with, he would be endorsing the national debate that I have been calling for for 17 years. That’s what matters, not his assessment of one particular participant in that debate or of one particular participant’s take on one particular issue.
I mentioned in my earlier comment that Shiller did not discuss the how-to aspects of his research findings in his own book. Does that suggest that Shiller does not support his own work? That would be an absurd suggestion. He obviously supports his own work or he wouldn’t do it. Yet it is an objective fact that he does not discuss the how-to implications of his research in his book. That would be true whether Rob Bennett ever showed up on the scene or not. This strange phenomenon has nothing to do with me. Shiller presented the world with a huge advance in its understanding of how stock investing works and the world (including Shiller) elected not to explore its implications. That’s our story.
Change is hard, Anonymous. That’s what it comes to. If we have that national debate, we are going to have to make some changes. Books are going to need to be rewritten. The courses that people need to complete to earn a Ph.D. in Economics are going to need to be redesigned. Calculators are going to need to be recrafted. People who are today big shots in this field are going to be diminished in status. People who are today little shots are going to gain in status. Showing that stock prices are set by emotion rather than by reason is a breathtaking change (an advance if this is the reality). It changes absolutely everything. Shiller’s research is like a hurricane (a benevolent one, to be sure) passing through our country. Everyone but me (including Shiller!) had had the sense to run to get out of the way of it rather than to run towards it and ultimately into it.
If Shiller endorses my work, Shiller is involved in something that he doesn’t want to be involved in. That’s the bottom line. I’ve mentioned prison sentences. I’ve mentioned civil awards and settlements. I’ve mentioned sites that have banned honest posting that obviously should not have done that. The owners of those sites obviously do not want to be exposed. If Shiller endorses me. he places himself in the middle of a hundred controversies. He would prefer not to do that. That’s what is going on here.
It is of course the same with all the others. Wade Pfau loves my work. Loves it, loves it, loves it. But he doesn’t want to see his own career destroyed because he says openly that he loves my work. So now he does not say that publicly. And he is able to go about his business. He still publishes research that has value. He just doesn’t publish the research that he knows in his heart would have the MOST value. He rationalizes the way that he is playing it by telling himself that people benefit from the work he does do, which is so, and that, if he spoke honestly about what he thinks of my work, he would not be able to find employment in this field. It’s not an entirely bad rationalization. I do not endorse it. But I see where he is coming from. That’s the basic story for lots and lots and lots of people.
The problem is that the national debate did not begin in 1981. That’s when it should have happened. There are arguments that can be made on both sides. I am obviously a firm believer in Valuation-Informed Indexing. But I don’t say that only Valuation-Informed Indexers would be making reasonable arguments if we had the national debate. There would be strong arguments coming from both directions. And we would over time learn important things as a result of the battle of ideas. That would be a very good thing. But how do we get started down that wonderful road now that the debate has been delayed for 38 years? It’s a very, very, very embarrassing situation. So we have elected to collectively put our heads in the sand and hope that somehow things work out okay without us having to engage in the national debate.
I don’t think there was evil intent when as a society we took a pass on initiation of the debate in 1981. I think that we were suffering from cognitive dissonance. It’s a real thing. It happens when you see changes this big — the human mind just cannot process them and so it tunes them out. And, once a certain amount of time had passed, it became too embarrassing to launch the debate 10 years after the logical starting date or 20 years after the logical starting point or 30 years after the logical starting point or whatever. So here we are.
Shiller doesn’t want to get involved. That’s the bottom line. He has made amazing contributions. He earned that Nobel prize. So he has gotten involved re other aspects of this in hugely important ways. But he does not want to be the one to expose the 38-year cover-up. Like lots of other good and smart people, he would like to see someone else take on that job.
I have taken it on. But I do not have the power at this point in time to get the job done. It is my belief that the next price crash will scare enough people that I will be able to get some help and then my efforts will be more effective and, once this is all written up on the front page of the New York Times, Shiller and lots of others will be willing to go on the record and then we all will live better lives from that point forward and not one person will regret our collective decision to finally move forward in our understanding of how stock investing works. But as of today Shiller and the others do not want to get involved, they do not want their names associated with this messy situation. All that I can do is to ask them for help. I have done that. And they have elected not to get involved at this point in time.
Rob
Your long response shows that you know that you are wrong. Shiller told people not to use CAPE for timing (but you won’t listen). If he thought CAPE could be used for timing (short term or long term) he would have said so. Don’t put words in his mouth. Shiller told people to stay in the market (just like he did). You didn’t agree. You are clearly not on the same page.
Shiller said in July of 1996 that investors who were sticking with their high stock allocations despite the sky-high CAPE value that applied at the time would live to regret it within 10 years. That was clearly a recommendation that people with high stock allocations lower them until prices became more reasonable. It was a recommendation to time the market. It wasn’t a recommendation to engage in short-term timing. There is nothing in Shiller’s research that supports short-term timing. But it was a recommendation to practice long-term timing.
Lots of other big names in this field have recommended long-term timing. Wade Pfau has recommended long-term timing. In fact, he told me that he was practicing it with his own portfolio. And he co-authored a paper with me that showed in great detail that long-term market timing has been providing investors with results far superior to those provided by Buy-and-Hold for as far back as we have records of stock prices. Rob Arnott has recommended long-term market timing. Carl Richards has said that my work advocating long-term market timing has “huge value.” Even John Bogle has said that there are six times in an investor’s lifetime when it would make sense to change his stock allocation, three times when it would make sense to lower it because prices are too high and three times when it would make sense to increase it because prices are too low. That’s market timing and that’s the king of Buy-and-Hold saying that it makes sense. There are many people who are aware of the strong support for long-term market timing set forth in the last 38 years of peer-reviewed research in this field.
All of those who believe that long-term market timing works and is required for investors who want to keep their risk profile roughly constant over time do not agree on precisely how long-term market timing should be practiced. That’s why we need a national debate on these matters. We need to hear everyone’s sincere opinion. And we need to ask questions about the various possibilities advanced. We need to learn. That’s what it comes down to. Shiller published his “revolutionary” research findings 38 years ago and the Buy-and-Holders have been engaging in criminally abusive practices to stop people from discussing their implications ever since. That needs to stop so that we can all learn what works best in all of the various circumstances that can turn up.
If Shiller had issued a clear statement saying that he does not think that long-term market timing works, you would share it with us. I have seen a statement in which he said that he used to think that timing based on CAPE worked but that he no longer thought so. That certainly cuts in your direction but it was not as clear a statement as you are suggesting it was. We need to ask Shiller to discuss that opinion in a place where he can be questioned as to precisely what he meant by it.
I believe that he was referring to his 1996 prediction, which failed. I believe that he is embarrassed by that prediction and he wanted to show that he learned something from the experience of making a prediction that did not play out. There are cautions that need to be kept in mind when practicing long-term timing; Shiller certainly believes that and I certainly believe that. But I don’t think that Shiller was saying that stock investing risk is constant. Shiller’s life work shows that stock investing risk is VARIABLE. If valuations affect long-term returns, as Shiller showed is the case, then stock investing risk VARIES with changes in CAPE levels. If that is so, then the investor who wants to keep his risk profile constant MUST adjust his stock allocation in response to big changes in valuations.
Do you believe that, if asked, Shiller would say that the safe withdrawal rate in January 2000 was 4 percent? I sure do not. That was the issue that I raised in my famous post of May 13, 2002. I asked a question: Should we be taking valuations into consideration when calculating the safe withdrawal rate? If Shiller’s research is legitimate, then we MUST do that or we will get the numbers wildly wrong and hurt people in very, very serious ways.
I would bet $100 that, if Shiller was asked, he would say that the safe withdrawal rate is not 4 percent at all CAPE levels. That is very important. We could prevent millions of failed retirements by getting that information out to people. We all should be doing everything we can to get a national debate launched and to get the information out to people that they need to be exposed to. Even those who end up sticking with a Buy-and-Hold strategy will end up learning from the experience.
I do not believe that Shiller and I are on the precise same page re HOW to engage in long-term market timing. He has made a number of statements in which he has said that he hopes to be able to avoid the worst effects of the coming price crash (he has said on numerous occasions that he believes a price crash is coming because prices are so insanely high) by watching for “indicators” and getting out of stocks at just the right moment. That’s short-term timing. Shiller’s research does not support short-term timing but he has made statements indicating that he intends to employ it himself to at least a limited extent. I think that he is on the wrong track re that one. So, no, we are not on precisely the same page.
Shiller has also indicated that he employs somewhat sophisticated strategies in trying to avoid the worst effects of the price crash that he believes is on the way. He looks for markets that are better priced at the moment than the U.S. market. That can work. John Walter Russell did some research on whether it is possible to avoid the effects of overvaluation in the broad U.S. market by investing in better-priced segments of the U.S. market or in non-U.S. markets. Doing something like that is still “timing.” If you change the types of stocks in which you are invested because of a price that applies at a certain time, you are timing.
I am 100 percent in favor of the exploration of those sorts of strategies. I don’t personally write about them because I write for the typical investor and I don’t think that those strategies are suitable for people who are not willing to put the time or effort into studying things enough to make such strategies work. Also, my aim is more to get the debate launched than it is to advance specific recommendations that I advertise as the be-all-and-end-all answer for everyone. I don’t believe that knowledge has advanced enough in this area for anyone, Rob Bennett or Robert Shiller or anyone else, to be offering perfect final solutions to the investing problem. We are all still on an earlier point on the learning curve than the point at which that sort of thing would become possible.
Shiller and I are on the same page re the core questions — valuations affect long-term returns, stock investing risk is not constant but variable, investors who want to maintain constant risk profiles MUST make some adjustment to big valuation shifts, the safe withdrawal rate is a number that is sometimes higher than 4 and sometimes lower than 4. I don’t get the sense from his public comments that we are on precisely the same page re how to implement long-term market timing. But of course I know very little about what Shiller believes about how to implement long-term market timing because this is the forbidden question. This is the thing that we all need to debate and that debate is still being stomped out to this day.
What do you think Shiller’s reaction would be to the peer-reviewed research paper that I co-authored with Wade Pfau? I think it would be very positive. I think we should ask him. We should lift the Ban on Honest Posting at every site on the internet and make him feel comfortable expressing his views on this subject in detail and then ASK HIM. We could all learn a great deal by doing that. Including Shiller. Because he would get feedback on his reaction to the paper from Wade and me, which would help him as much as hearing Shiller’s reaction would help Wade and me come to a better understanding of these terribly important matters.
Have you stopped to consider how crazy it is that Shiller has never been asked to comment on the paper that I co-authored with Wade? That is in-freakin’-sane! I mean, come on. Our paper makes numerous bold assertions (all backed by the historical return data) about how to implement Shiller’s “revolutionary” (his word) research findings. Every investor on the planet would benefit from knowing what Shiller thinks about our paper. We should all be doing everything in our power to make him feel 100 percent comfortable talking about these matters in pubic and then get about the business of asking the man some darn questions.
That’s my sincere take, Anonymous. I naturally wish you all good things.
Rob