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:
As you admit, you are not a math guy. With investing, it is all about the numbers. I don’t think, however, it is just your poor math skills that lead to all of your false conclusions. Your retirement plan failed, your market timing strategy failed and the community at large humiliated you and kicked you out. As such, you have to push a false narrative in order to try and save face. As you can see, it’s not working.
I don’t consider math stuff to be my strong suit. So we are okay re that one.
I half agree with you that investing is “all about the numbers” and I half disagree. The Buy-and-Holders do not include adjustments for valuations in any of their calculations. Shiller’s work shows that valuation adjustments are required. So the two schools of thought produce very different numbers. If Shiller’s Nobel-prize-winning research is legitimate research, then every calculation that the Buy-and-Holders have ever done is in error. If you leave out the most important factor, your calculations are always wrong, no?
So who are the real numbers guys? The ones who always ignore the most important factor and get every calculation wrong? Or the ones who say “we better include valuations because we know that valuations always have a big effect”? I do not consider myself strong on numbers but I consider myself strong on emotions and it is investor emotions that cause mispricing (overvaluation and undervaluation). So I think it would be fair to say that I do a better job with the numbers than the Buy-and-Holders. Not because I am great with numbers. Because I am good enough with emotions to know that numbers relating to emotions need to be included and the Buy-and-Holders — who generally are not so strong dealing with emotions — do not.
I definitely think that it is better to get the numbers right than to get them wrong. I am 100 percent confident re that one.
Rob
Anonymous says
Where is Shillers conclusion that says we should use VII?
Answer: he never said it. In fact, he concluded that you shouldn’t use CAPE to time the market.
Rob says
He said that one time in an offhand comment. The other side of the story is that his entire life’s work shows that market timing is required for every investor who wants to keep his risk profile constant over time. Shiller was awarded a Nobel prize for showing that valuations affect long-term returns. If valuations affect returns, then stock investing risk is not stable but variable. If stock investing risk is variable, then an investor who fails to engage in market timing thereby insures that his risk profile changes with swings in valuations.
This issue affects every investor alive. So why haven’t there been scores of interviews with Shiller asking him what he meant by that offhand comment?
Brett Arends wrote an article titled “The Market Timing Myth” in the Wall Street Journal on October 14, 2010. It stated that: “For years the investment industry has tried to scare clients into staying fully invested in the stock market at all times, no matter how high stocks go. It’s hooey. They’re leaving out more than half the story. Anyone who followed the numbers would have avoided the disaster of the 1929 crash, the 1970s or the past lost decade on Wall Street…. I wonder how many stayed fully invested because their brokers warned them ‘you can’t time the market’.”
The more that Shiller talks about his findings and the more that others talk about Shiller’s findings, the harder it becomes to keep the con going. Cons don’t survive exposure to the light of day. Buy-and-Hold has generated hundreds of millions in profits for a small number of Wall Street Con Men.
If you wanted people to learn about Shiller’s views, you would be favoring open discussion of these issues rather than going to crazy length to block it.
My sincere take.
Rob the Market Timer
Anonymous says
Your problem is with Shiller. He won’t say what you want him to say, which makes him a goon.
Rob says
My problem is with human nature, as is yours.
There is something in human nature that makes us want to lie to ourselves, to tell ourselves that things are better than they really are and to thereby put ourselves in danger. There are people who are 100 pounds overweight and who are thus at risk for a heart attack but who tell themselves “I haven’t had a heart attack yet, so I will probably never have one.” There are people who tell themselves “I can still drive home even though I had four beers, I don’t need to call a cab” and there are people who fail to confront them about those sorts of decisions. We humans hurt ourselves by lying to ourselves. All the time. It’s not just in the stock investing realm that this happens.
That’s my problem. People want to lie to themselves. The last 39 years of peer-reviewed research in the investing realm makes it hard for us to do that. The message of that 39 years of peer-reviewed research couldn’t be more clear — always, always, always, always practice market timing; whenever a large number of investors fails to do so, we see a crash big enough to bring on an economic crisis, please don’t ever fall for the Buy-and-Hold garbage. The irony is that, the stronger the case is that drunk driving is dangerous, the more angry the drunk guy is when you try to take away his car keys. We really, really, really want to engage in the dangerous activity that our reasoning mind tells us we should not engage in and so we lash out at those who try to use reason to persuade us. When we possess a strong desire to do something unreasonable, reason becomes our enemy. We hate it, hate it, hate it, hate it, hate it. We ban it. We follow it all over the internet and call it names, that sort of thing.
That’s my problem. That is what is working against me.
But you have a problem too. We humans are not only the unreasoning animal that shuts out knowledge so that we can continue to do stuff that seems appealing in the short term but that has been shown to be dangerous. We also are on occasion the rational animal. That’s the hat we are wearing when we do research. That’s the hat we are wearing when we adopt rules at discussion boards that say that death threats are out of line. That’s the hat we are wearing when thousands of us put up posts asking the Goons among us to knock off the funny business and to permit honest posting. That part of us is just as real as the part that wants to do crazy dangerous stuff and to lie to ourselves about the risks.
So we both have a problem. We are fighting a battle of reason versus emotion. You think that emotion is going to win forever because it has won a number of short-term victories. I think that reason is going to win in the end because it must, our economic system will not remain viable for long into the future if we do not come up with some way to provide access to honest and accurate and research-based investment advice to the millions of people who want and need access to it.
The big question is — Will things change when people can see with their own eyes how dangerous the pure Get Rich Quick approach is? Does the fat guy wish that he had made more of an effort to watch his diet after he has had his heart attack and has had a bypass and is spending months taking cautious walks trying to recover from it? Does the heavy drinking guy wish that he had let his friends take his keys after he has been in an accident and has been told that he may never walk again?
I think that seeing things with our own eyes is going to make an impression on us. The next price crash will not be just theory, as people tend to think of the last 39 years of peer-reviewed research. The next price crash will bring on thousands and thousands and thousands of painful realities. And we will as a nation have to reconsider our behavior during the 30-year cover-up and decide whether the ban on honest posting is really such a hot idea. I think we will make better choices at that time. We’ll see. It is beyond my abilities to lie about what the research says in any event. So I would say that, wouldn’t I?
Shiller has a little bit of the Goon in him. He could have included a clear statement in his book saying that: “Given my finding that valuations affect long-term returns, there is zero chance that the safe withdrawal rate is the same number at all times and the Buy-and-Hold retirement studies should be corrected immediately, before they cause even more harm to even more people.” That would have been a great statement. That would have helped us all. I wish that he had included that statement in his book.
But, yes, you are right, Shiller is a human, which means that Shiller has a bit of Goon in him. Shiller wants the other humans to like him so he tells lies when he is placed in circumstances in which he believes that his career will be in danger if he says things in a blunt and plain and clear way. As did that Rob Bennett fellow for a good number of years. As I probably do to a small extent even today. We all want to be liked. So we all hold back on telling the full truth when we see that our fellow humans very much do not want to hear it.
I think that evolution put that part of us in us for a good reason. We need to stick with the herd. We don’t have time to think every issue through for ourselves. So we need to rely on what the other humans around us are saying. If we were all independent thinkers all the time, we would in general die sooner than we do. Evolution doesn’t like to see us dying sooner. So it edited out extreme free thinking. It put in us a gene that causes us to want to follow the herd and to dedicate lots of brain power not to discovering truth but to rationalizing dangerous stuff that the herd wants to see rationalized.
But evolution also sees benefit in a measure of free thinking. So we also have an ability to see through the b.s. of the herd and to move forward as a people. The laws against drunk driving have been tightened. There are now cancer warnings on cigarette packages. There was a time when people laughed at the idea that there would ever be cancer warnings on cigarette packages. But we overcame the herd instinct to laugh in that case. The warnings are there. Those who thought that the research showing that smoking causes cancer was important prevailed in the end. Good for them. Good for all the humans.
We are as a nation working through a process, Anonymous. Yes, we love our Get Rich Quick investing strategies. Yes, we have been investing in ways that cause price crashes and economic crises for a long, long time now. But, no, we are not hopeless cases. We as a society permitted Shillar’s book to be published, We as a society awarded Shiller a Nobel prize. We as a society adopted rules at every discussion board and blog prohibiting the tactics that you Goons have employed to block honest discussion of the last 39 years of peer-reviewed research for nearly 18 years now. We are not an all bad people. We are not an all good people, that much is evident at this point in the proceedings. But we are not an all bad people either. We are in the process of working our way to a better place.
Shiller will make that statement about safe withdrawal rates when he sees that it is safe for him to make it. I look forward to that day. I like the humans. I would like to see them stop beating up on themselves. I would like to see fewer of them drive drunk. And I would like to see fewer of them eat themselves into an early grave. And I would like to see fewer of them believes the words of internet con men who tell them that a 4 percent withdrawal rate is “100 percent safe” even when stocks are priced at three times fair value and the true safe withdrawal rate is 1.6 percent.
It all depends on whether you think that the humans are capable of engaging in reasoned discussion or not. I believe that they are. I never would have become a journalist in the first place if I didn’t think that we were capable of reasoned discussion. Reasoned discussion doesn’t always prevail in the short term. I don’t say that. But, when the issue is important enough, I think that the better bet is that reasoned discussion will prevail in the long run.
We will see.
Rob the Goon (At Least Once Upon a Time and Probably to Some Extent Even to This Day)
Anonymous says
Shiller is like the rest of us. He wants to make money as he knows you can’t time the market. He is one of the strongest proponents of buy, hold and rebalance.
Rob says
That explains why his work is described as “revolutionary” in the sub-title to his book and why he was awarded a Nobel prize for his contributions. Shiller is just repeating the conventional wisdom of the day. Makes perfect sense.
My best and warmest wishes to you and yours, Anonymous.
Conventional-Wisdom-Loving (Sometimes but Not All the Time) Rob