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:
‘THE GAME’: RUSH: I’ve Got News For You: TRUMP IS CONTROLLING THE MEDIA!
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.
Now —
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.
Rob
Rob senselessly screeched: ““Shiller WANTS to Tell the Truth. So Does Bogle. So Does Pfau. So Does Kitces. So Does Lindauer. So Does Greaney. We ALL Want to. The Trouble Is That the Investing Establishment Does Not Want This to Get Out!””
Uhm, Rob? If those folks aren’t the “Retirement Investing Establishment”, who is?
Bennett: “If ‘valuations affect long-term returns’, [then it follows that] stock investing risk is not static but variable.”
Of course it is. Not one soul that I can name or recall (or that YOU can, either!!!!!) has ever attempted to refute this obvious fact, that was well-discussed even as far back as 1930’s by Ben Graham.
Bennett: “If stock investing risk varies with changes in valuations (price) investors must change their stock allocations in response to big valuation shifts ”
And there we have it. The surmise which you make that can only still be made if you are willfully blinding yourself, and deafening your own ears, to the thousands of times you have been informed, re-informed, explained, directed, schooled, and otherwise appraised of the simple truth: that MANY processes and systems can best be managed NOT by ‘chasing the spikes’ or the noise, or the most recent temporary excursion, but by thoughtfully paying attention to the AVERAGE, the TREND, and the various other statistical quantities that define a processes’ past behavior (and therefore, outside of discernible changed influencers going forward), is almost certain likely to continue to govern it’s future behavior as well. You openly eschew science, engineering and mathematics, opting instead for your own peculiar brand of ‘touchy-feely’ intuition-driven data-free psychic divination. That is certainly your right, just as people with dousing rods can go look for water with a hickory stick. That is, as long as you don’t claim to be the Pied Piper of true reality and call everyone else a “felon”! LOL Me, before drilling a water well that I will depend upon for 30, 40, 50 years, I prefer to employ a survey, a geologist, a contour map, knowing the area’s water table, perhaps a test well, etc. Good luck with your soothsaying, Rob!
Uhm, Rob? If those folks aren’t the “Retirement Investing Establishment”, who is?
They are part of the investing establishment. And they are also human beings who would like to tell the truth about how stock investing works.
The problem is the price that they fear that they will be required to pay if they tell the truth. The ideal thing would have been for Bogle to have come clean on the day that he learned that he was in error in thinking that price discipline is not required when buying stocks. That was in 1981. He didn’t come clean. He rationalized that he could put that off until more evidence came in. And then it became harder and harder to come clean the longer he put it off.
He is now in a situation where he caused an economic crisis with his unwillingness to come clean. Now it is harder than ever for him to do so. But it only gets harder for him by him putting it off even longer. Telling more lies can only make matters worse. Telling more lies can never make things better.
Thomas Jefferson was part of the political establishment of this country for a time. And he owned slaves. Does it follow that no one in this country could ever question owning slaves? It came to be questioned in time because it was so important a matter that it had to be questioned. And the side saying that owning slaves is wrong prevailed once the questioning began. If Thomas Jefferson were alive today, he would not own slaves.
Establishments get things wrong. They have to be challenged. The challenges usually come from people outside the establishment. The people raising the challenges need courage to go up against these powerful people. They need to stick at it until they prevail. In the end the members of the discredited establishment thank them for their efforts. Because most of the members of the discredited establishment have good in them and want to do good and are grateful that those who challenge them thereby free them to once again do good. That’s what will happen in this case.
The establishment of the football industry once denied that playing football causes concussions. They were challenged by people outside the establishment re that one and they recently conceded that they have been proven wrong. We will see much-needed changes in this area as a result.
The establishment of the tobacco industry once denied that smoking causes cancer. They were challenged by people outside the establishment re that one and they ultimately conceded that they had been proven wrong. We saw much needed changes as a result.
We are in the process of achieving a paradigm change in the field of investing. There has of course never been even the slightest reason to believe that price discipline is not 100 percent required when buying stocks. The idea that it could be otherwise is pure silliness. I have challenged the investing establishment re this one and I will prevail. And Jack Bogle will shake my hand and thank me for my efforts as he should have done on the day he learned about Mel Lindauer’s threats of physical violence against members of the Bogleheads Forum community who dared to “cross” him by posting honestly re the last 34 years of peer-reviewed research in this field.
Establishments serve an important purpose. But establishments get things wrong from time to time. When they get things wrong, they need to be challenged. And they need to correct their mistakes. If establishments never corrected their mistakes, society could never advance. If society never advanced, we would not be able to generate returns of 6.5 percent real in our stock market. Economic growth comes from advances. Those who oppose advances oppose economic growth, whether they appreciate that that is what they are doing or not.
We are all on the same side, Anonymous. Bogle wants to achieve these advances, as do I. The difference is that he feels that his reputation will be damaged when people learn about the massive cover-up. That’s so. But I didn’t do that to him. I urged Bogle to come clean years ago. I am the best friend that Bogle has in this world and I will continue to be his best friend. I will continue to urge him to come clean and to disassociate from you Goons in every possible way.
I love Jack Bogle and I love my Buy-and-Hold friends. That’s why I want Jack and all my friends to come clean re these matters.
Shiller was awarded a Nobel prize for his work. There’s a reason. Shiller achieved an important advance. We all need to recognize it and talk about it and explore it. Bogle hasn’t done that. Bogle is pushing the same smelly Buy-and-Hold garbage that he was pushing before Shiller published his “revolutionary” (his word) research findings in 1981. By failing to incorporate Shiller’s findings into his model for how stock investing works, Bogle transformed himself into a con man. Too sad.
I OPPOSE that idea. I want the old Jack Bogle back, the honest Jack Bogle, the Jack Bogle who did not feel a need to associate with internet Goons who employ death threats and threats of career destruction to block honest posting on the internet. I will get that old, honest Jack Bogle back. You just wait and see if I don’t, Goon friend. When I get him back, we will have a good laugh about all this over a nice cold one.
My best wishes to you and yours, Anonymous.
Please take good care.
Rob
that MANY processes and systems can best be managed NOT by ‘chasing the spikes’ or the noise, or the most recent temporary excursion, but by thoughtfully paying attention to the AVERAGE, the TREND, and the various other statistical quantities that define a processes’ past behavior (and therefore, outside of discernible changed influencers going forward), is almost certain likely to continue to govern it’s future behavior as well.
It’s you and the other Buy-and-Holders who are chasing the spikes, not me, Anonymous.
Stock prices went to three times fair value in January 2000. The Buy-and-Holders encouraged people to treat the numbers on their portfolio statements as real. I say that they needed to divide by three to know the true values of their portfolios (that is, the value that would be assigned to them but for the chasing of the spikes).
I say that people need to know the REAL value of their portfolios. I say that people need to know the REAL safe withdrawal rate. I say that people need to know the REAL risk they are taking on when they buy insanely overpriced stocks.
I don’t chase spikes. I don’t encourage my friends to chase spikes. I am not a con man. Bogle is a con man. Greaney is a con man. Lindauer is a con man.
I am the fellow seeking to EXPOSE the con men.
Do you see?
Rob
What’s with that “burning hate” screed over on ValueWalk? You said you kept the goon rhetoric over here. Rob’s worlds are colliding!
This week’s column is mostly just numbers.
The numbers will look a lot worse following the next price crash.
The popularity of Buy-and-Hold has nowhere to go but down. The more people’s lives it destroys, the fewer there will be who will be willing to defend it or even to tolerate abusive posting on the part of those few still willing to defend it.
My take.
Rob
Oops!
When I wrote that “this week’s column is mostly just numbers,’ I was thinking of the column entry that I turned in this week and that will be posted on Tuesday. The one posted this week was indeed process-oriented (it argued that investment professionals feel pressured to push Get Rich Quick strategies because they often pay off in the short term and their clients would be upset that their advisor’s advice caused them to miss out on short-term gains).
This point is not as “hot” as many of the points that I advance at this blog. I don’t use the words “financial fraud” or talk about prison sentences. So I don’t see it as a refutation of the point I made in an earlier comment here, that I generally only discuss the super hot stuff here. Also, I have discussed process items in column entries before. I focus on substance items in the column. But I have never entirely limited myself to them and I didn’t say in my earlier comment that I do so. So I don’t think there’s anything too out-of-the-ordinary with this week’s column entry.
I hope that helps a bit.
Rob