Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Can you show just one example where VII has worked for anyone?
It obviously couldn’t work for anyone before anyone knew about it. Shiller only published his “revolutionary” (his word) research showing that valuations affect long-term returns in 1981. And by 1981, Buy-and-Hold had become popular. A lot of people were overtaken by cognitive dissonance and stuck with Buy-and-Hold. And there was a huge bull market that made Buy-and-Hold look really good for a time. So there is only a small percentage of the population that has tried Valuation-Informed Indexing. I have never heard of anyone who tried it and was dissatisfied. The numbers show that it has worked for those who have tried it (presuming that you adjust for valuations, as Shiller’s research shows you must). It couldn’t possibly have done any better given the criminal behavior that we have seen from the Buy-and-Holders to keep people from learning what the last 38 years of peer-reviewed research have taught us about what works.
It’s not your place to deny people the information they need to make decisions for themselves. If you prefer Buy-and-Hold, that’s obviously fine. Follow it. And you should of course feel free to tell people that you don’t think that Valuation-Informed Indexing has been sufficiently tested and that they should avoid it. That’s also fine. Large numbers of people are going to listen to that advice, which if of course also fine. But, if you play it by the laws of the United States, there will also be large numbers of people who will choose to switch to Valuation-Informed Indexing once they hear the case for it advanced in civil and reasoned discussions. And that is of course also 100 percent fine. That’s how our system works. That’s how we come to enjoy learning experiences. We all say what we believe and some of us take one path and some of us take another path and over time we compare notes and as a society we advance to better places step by step.
If we followed a policy that no new idea could ever be considered until 100 percent of the population embraced it and had success with it, we would never benefit from any new ideas. We would not be the nation that we are if that were the policy that we followed. Did the committee that awarded Shiller his Nobel prize hold it back because less than 100 percent of the population today follows Valuation-Informed Indexing? They did not. They saw that he had discovered some amazing things about how stock investing works and went ahead and awarded him for helping us all out. Well, I believe that I should make use of the amazing things that I learned as the result of Shiller’s work and that’s 100 percent my choice, not yours. And there are millions of other investors who today would like to make use of Shiller’s work and that is their choice to make, not yours.
None of us has perfect knowledge. None of us is never wrong. None of us has the right to crush those who offer viewpoints other than our own so that no one else can hear them.
Valuation-Informed Indexing has worked in a general sense for as far back as we have records of stock prices. The peer-reviewed research that I co-authored with Wade Pfau shows that beyond any reasonable doubt whatsoever. The findings set forth in our research are stunning. Every investor alive should know about those findings and anyone who blocks people from learning about those findings through criminal behavior is responsible for any losses suffered as a result. In the event that stocks continue to perform in the future anything at all as they have always performed in the past, those losses will be in the trillions of dollars. So that’s bad stuff.
It’s not your place to tell others what to do. It’s your place to offer your thoughts. That’s helpful. But death threats are over the line. Demands for unjustified board bannings are over the line. Thousands of acts of defamation are over the line. Threats to get academic researchers fired from their jobs are over the line. If you reach a point where you believe that the only way in which you can defend your favorite investment strategy from research-based challenges to it is to engage in criminal behavior, it is time to go looking for a new favorite investment strategy. That ain’t the way, Anonymous.
I think that Shiller gave us all a great gift with his Nobel-prize-winning research. I have seen more than enough to become a devoted follower. You don’t feel the same. So be it. That doesn’t mean that you cannot be my friend (at least it doesn’t mean that from my end). But it means that I cannot today say the same things about stock investing that I would have said about it in 1980. Shiller changed the world’s understanding of how stock investing works in a fundamental way. I am part of the world and it is my job to tell people what I truly believe about this subject when I discuss it. So that is what I do.
If Shiller is right, it was the promotion of Buy-and-Hold strategies that was the primary cause of both the Great Depression and of the economic crisis of 2008. Was Buy-and-Hold “working” at those times? I say “no.” You will say that there were some individual investors in those times who declared that Buy-and-Hold was working for them. But the overall effect of promotion of the strategy was catastrophic when you consider that it caused millions of failed retirements and hundreds of thousands of business collapses and millions of people to be thrown out of their jobs. I don’t call that “working.” People need to know about that side of Buy-and-Hold too. Shiller’s work changes our understanding of how stock investing works in hundreds of ways and each and every one of us needs to hear about all of them (we of course all have the right to decide how much of what we hear is legitimate or not).
My best wishes to you, my skeptical friend.
VII Advocate Rob
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