“If Large Numbers of Investors Fail to Practice Price Discipline When Buying Stocks, the Market Eventually Crashes Because There Is No Other Way to Get Prices Down (It Is the Market’s Core Function to Get Prices Right) Than to Crash Them.”

Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:

Shiller is not a failure, Rob. He told people to not use CAPE to time the market. No, Rob, don’t tell us he just didn’t talk about long term versus short term timing. He said don’t do it at all. End of story. The real truth is that if people followed your advice on VII, the would have had a miserable outcome versus buy and hold. Stop lying about it. You think if you just repeat the lie long enough, people will believe it. Stop misquoting Wade Pfau as well. Wade also grew tired of your lies and won’t speak to you either.

It would be nice if you allowed people to post honestly like this at your website, but of course you don’t.

The only change we have seen is that you have finally admitted your retirement plan failed and that you will have to go back to work. Maybe you could write an article about that as I am sure your readers could learn from you if you actually wrote about honest things in your life instead of the fairytales.

Shiller has said both things. In 1996, he said that investors who failed to lower their stock allocations given the high valuation level that applied then would live to regret it within 10 years. He was advocating long-term market timing, as I do. And, following the 2008 crash, he said that investors should not get back into stocks until the CAPE level dropped below 10, Again, that’s market timing.

You are correct, though, that he made a statement more recently suggesting that he does not think that it is a good idea to use CAPE values to time the market. I don’t agree even a tiny bit re that one. I think he said it because he is embarrassed that his earlier predictions about where stock prices were headed did not play out well.

But I think it is absolutely essential that investors engage in long-term market timing. Long-term market timing is price discipline. If large numbers of investors fail to practice price discipline when buying stocks, the market eventually crashes because there is no other way to get prices down (it is the market’s core function to get prices right) than to crash them. Crashes cause trillions of dollars of spending power to leave the economic and bring on recessions or in rare cases even depressions. We all suffer in that event.

It would be better for us all to just practice price discipline all along. We would not see the bull markets that we see when Buy-and-Hold is widely promoted. But we would still get that steady 6.5 percent real return each year that is the product of economic gains and not just irrational exuberance. I think that annual gains of 6.5 percent real are just fine. And I would love to live in a world in which we did not see these horrible price crashes and the horrible economic crises that follow from them. Call me madcap,

I naturally wish you all good things, Sammy.

Rob