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:
Rob,
You have been pushing this story for a long time. Shiller even warned that you shouldn’t use CAPE to time the market. It is bad enough that you have been misleading people with your crash predictions that have failed time after time.
Look at how this has impacted you. In 2002, you posted your retirement plan in which you had a nest egg of $400k invested (as you claim) in i bonds, TIPS and CDs and your spending budget was $30k/ yr. You have reported a real return of 3.5 percent (which is probably even embellished based on other comments you made. You made several other statements that you would be transitioning into stocks along the way. In 2005, you provided an update that your spending was up to $38k, which is a large percentage increase over the 2002 budget. You told people that you were not concerned because the market returned 7% real and that with your VII strategy, you would get a return in excess of the 7%. It has now been 17 years since the launch of your 2002 plan. Your VII strategy has kept you out of the market and you have missed out on the large gains. You have acknowledged that you now have to return to the job market. Clearly, your plan with VII failed. Even if there was some huge drop today, your nest egg has deteriorated, so there is not much left to put back into the market. It is just simple math, but as you say, you are not a math guy.
All of Shiller’s work supports market timing. If the market is efficient, as was widely believed when Buy-and-Hold was being developed, timing is not required and it is not even a good idea because stock investing risk is constant over time. But if valuations affect long-term returns, as Shiller showed, then stock investing risk is not constant but variable. In that case, timing is required for all investors seeking to keep their risk profile roughly constant over time.
Shiller has advocated market timing on several occasions. He was clear as clear can be in 1996. He said that investors who stuck with their high stock allocations despite the high prices that applied at that time would live to regret it within 10 years. If that’s not advocating market timing, I don’t know what is.
However, Shiller did make an offhand comment in an interview he did a few years ago in which he suggested that he no longer believes in market timing. I very strongly believe in market timing. I think it is the key to successful long-term stock investing. And it is the key to stabilization of the economy. Market timing is price discipline. A market in which price discipline has been removed is a market that is on its way to collapse. And, when the stock market collapses, so many people lose so much spending power that the economic system always collapses as well. So I strongly advocate market timing.
Is it possible that Shiller no longer supports market timing? I can’t entirely rule out the possibility given that he did make that one off-hand comment that suggested he was experiencing doubts. I want to know more about Shiller’s views on this question and about the views of hundreds of other experts in this field. We need to have a national debate on this question. What does Shiller really believe? Why does he believe that? What do others believe? Why do they believe that? John Bogle once came within an inch of endorsing Valuation-Informed Indexing, which of course is all about market timing. If Shiller now no longer believes in market timing and Bogle before his death had come a long way to endorsing it, we all need to be reconsidering the question until our thinking is clearer.
I would be a multi-millionaire today if it were not for the abusive posting of you Goons. I mean, please give me a break. There is huge interest in this stuff. I have had hundreds of people tell me that I am the first person who has written about stock investing in a way that makes complete sense. Say that that is 10 percent of the population. That’s millions of people. I have a funny feeling that I will have no problem bringing in a mountain of money after prices have crashed and I am able to reach all of the people who want to learn more about how stock investing works in the real world. My plan hasn’t failed at all. I saved like a madman in earlier days because I wanted to be able to do work like this and not need to worry about money coming in immediately and that plan has worked like a dream. I haven’t cashed in yet. But if you go by the 200 rave endorsements on the home page of my web site, I think it would be fair to say that things are looking very good.
I think that LOTS of people will be making money doing this in the days following the next price crash. If valuations really affect long-term returns (Shiller was awarded a Nobel prize for his work), then any investment strategy that does not call for market timing is dangerous. A strategy that does not call for market timing is a strategy that does not call for price discipline. Huh? Price discipline is wonderful. Price discipline is what makes markets work. I believe that Valuation-Informed Indexing is the future and that Buy-and-Hold is the past.
I believe that launching a national debate on this stuff will end up helping every investor on the planet in a very big way. The key is getting the Buy-and-Holders to acknowledge at least the possibility that they made a mistake re market timing. I love that the Buy-and-Holders recommended using the peer-reviewed research to guide one’s investment strategy. But it’s just a reality of the scientific process that no finding is ever the final say. We are always in the process of learning new things and I believe that the last 38 years of -peer-reviewed research in this field is amazing stuff. We need to be talking about it at every site on the internet.
My best and warmest wishes to you, my old friend.
Rob
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