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’s a fact that Teslas do not have microwave ovens and my observation is of similar nature as your Greaney comment.
Say that someone said on an internet discussion board that he believed that Teslas should come equipped with microwave ovens. Would we see death threats and acts of extortion and board bannings and all the rest? We would not. All of the people who possessed a confident belief that microwave ovens are not needed in Teslas would just let the guy express his opinion and would be okay with anyone buying into it doing so. No biggie.
We saw a very, very, very. very different reaction to my claim that the retirement study posted at John Greaney’s web site lacks an adjustment for the valuation level that applies on the day the retirement begins. A level of defensiveness never before witnessed in the history of Planet Earth. It is very important to Buy-and-Holders that investors not start thinking through the far-reaching how-to implications of Shiller’s Nobel-prize-winning research.
Why?
To understand the defensiveness, you need to consider what it means to say that bull markets are the product of irrational exuberance rather than of positive economic developments. If that’s so, then bull markets (times when the CAPE level goes above 17) are acts of self-deception. Bull markets are liar’s markets. If we permit honest posting re the peer-reviewed research, it becomes very difficult to keep the self-deception going. People naturally want to invest in their best interest. Let them know that a regression analysis of the historical stock return data shows that the most likely 10-year annualized return at the top of the bubble was a negative number and they are going to lower their stock allocation when the CAPE level reaches those super scary levels.
This makes bull markets impossible!
If investors begin acting in their self-interest, there will be no more bull markets! Stock prices are self-regulating in a world in which honest posting re the research is permitted. Irrational exuberance cannot get very out of control in a world in which investors are able to talk amongst themselves about how much damage it has been doing to investors’ lives going back to the day the first stock market was opened for business. Shiller showed something important. Hence, the Nobel prize.
You Goons will say: “oh , no, we are not being irrational at all!” And you really do follow Buy-and-Hold strategies. So there is a surface sense in which it could be said that you really believe that. But it is all bravado, not a genuine confidence. Your defensive behavior shows that there is a part of your brain that believes that Shiller’s research findings are really just common sense. OF COURSE narket timing is required at all times and works at all times! How could it be different? Market timing is price discipline. There are thousands and thousands of markets and in every single one price discipline is essential. What possible reason could there be for believing that the stock market is the sole exception to the otherwise universal rule?
I believe that price discipline is every bit as important in the stock market as it is in every other market that ever existed. The difference in the stock market is that in the stock market the people making purchases can fool themselves into thinking that they have experienced “gains” by pusing prices up to crazy, unsustainable levels. So they have an incentive to prohibit rational thought about this subject. Research aids rational thought. So research is the enemy in the eyes of all of those who have come to believe that the irrational exuberance portion of their portfolio is real. So these people hate, hate, hate anyone who brings up Shiller’s amazing research findings on internet discussion boards.
I think that, when you hate me, you are really hating that part of your brain that has held on to what common sense tells you must be so, that price discipline (market timing!) is always a good thing. You want to quiet that portion of your brain and I want to let it have its say. It’s a battle between the Get Rich Quick urge and rationality/research. I believe that ratioanlity will prevail in the end because I believe that human progress is a real thing. But we’ll see, you know?
The reaction of the Buy-and-Holders to open discussion of Shiller’s research findings tells the story. People don’t behave like that unless they feel very threatened. Those who treat irrational exuberance as real always feel threatened because it is impossible to have a quiet coinfidence in something that is inherently irrational. When you place your confidence in something irrational, you have a fear that it is going to be taken away ay any moment.
I believe that the primary purpose of investment advice is to help investors overcome their Get Rich Quick/Buy-and-Hold urge and be as rational as possible in all decisions they make. Sue me. That’s my sincere belief. I want to take away your irrational exuberance. I think of irrational exuberance as the cancer of the personal finance world. I want to help people learn about the cure for canvcer, which has been available to anyone who follows the peer-reviewed research for 42 years now.
My best wishes, etc.
Rob
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