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:
It was crystal clear when Shiller said it. A link was posted on your website. Your comment at the fine was that you disagreed with Shiller and that he was scared to tell the truth (which you made up).
Is the title of Shiller’s book crystal clear, Sammy? If a large part of your stock portfolio is the product of irrational exuberance, you need to adjust for that when determining whether you have saved enough to retire or not, do you not?
The subtitle of his book described his model for understanding how stock investing works as “revolutionary.” Is it not crystal clear that that means that he is saying something very different than what those who came before him said? What would you say the something very different part is?
Was it crystal clear that Shiller was advocating market timing when he told investors in the Summer of 1996 that, if they dd not lower their stock allocations, they would live to regret it within 10 years?
Was it crystal clear when Shiller was awarded a Nobel prize that that was because he added something new to our understanding of how stock investing works?
I agree with you that there was one comment that he made in one interview that made it sound like he had come to have doubts about market timing. I would like to know precisely what he meant because, if he does have doubts, we all need to know that. But I am not willing to overlook his lifetime of work because of one stray comment that he never was asked to explain or to put into context. His work is based on analysis of the historical return data. And that data did not change on the day that he made that stray comment. It still says the same thing that it said on all the occasions on which he made the case for market timing.
To the extent that Shiller truly believes that market timing is not required, I do disagree with him. I am just not willing to conclude that he believes that without more evidence. I do think that he is afraid to say with clarity what he believes re this question because I have seen scores of other experts in this field evidence fear over speaking to the question frankly. There are millions of people who have believed the Buy-and-Hold claims that market timing is not required (or that it might not even be a good idea!) and they find it very upsetting to hear that there is some question about this. So this is a very controversial question. People back away from addressing it clearly.
I think that as a society we need to speak about it openly. If Shiller’s Nobel-prize-winning research showing that market timing is required turns out to be legitimate, we all are going to suffer terrible losses in the not-too-distant future, losses that will be big enough to cause a reduction in consumer spending and likely bring on another economic crisis. So this is an issue that we all need to get a handle on.
Shiller’s research is a big deal. We all need to come to a better understanding of what it signifies, in my assessment.
I hope that that helps, at least a tiny bit.
I naturally wish you the best of luck with your investment strategies, regardless of what I think about the merit of those strategies.
Rob
Your problem is not with Sammy or any of the other hundreds you have called a goon. Your problem is that you have this ambition for people to consider you a leader in the investment community and for that to happen you need others, like Shiller, to say you have offered some unique understanding or other significant contribution to the investment community. Unfortunately, you haven’t done that. Your attempts have failed you have become frustrated to the point that you have made outrageous comments to overcompensate. All you have to show for it is ridicule and embarrassment.
I’m a leader, Anonymous. I pointed out the error in the Buy-and-Hold retirement studies in a post that I put to a Motley Fool discussion board on the morning of May 13, 2002. 18 years have passed and those studies have not been corrected to this day. If everyone in the field had been calling for them to be corrected, they would have been corrected by now, So I must be ahead of a lot of people in this field. That makes me a leader.
The question here is HOW did I become a leader? I should’t be one. I don’t have the training or experience that it would ordinarily take for someone to become a leader in this field. It doesn’t take an I.Q. of 140 to notice that the Buy-and-Hold retirement studies lack an adjustment for the valuation level that applies on the day the retirement begins. Everyone in this field should have noticed that those studies lack a valuation adjustment long before I came on the scene. If everyone else had spoken out years ago, I obviously wouldn’t be any sort of leader.
But I am. A few others have spoken out. But not enough to get the job done. As you Goons have noted from time to time, even Shiller himself has never advanced a simple statement that the Buy-and-Hold retirement studies are in error and should be corrected immediately. So I am a leader. But I shouldn’t be. It is an exceedingly strange situation.
The job of a journalist (which is what I am — I am certainly not an investing expert) is to explain how this strange set of circumstances came to be. That’s what I try to do. I try to tell the story. I believe that there will be many people trying to make sense of things in the days following the next price crash and I see it as my job to tell them the story in a complete and honest and fair way. It’s a big job. I think that I can do that job better than anyone else alive because of the experiences that I have lived through over the past 18 years. I certainly am going to give it my best shot.
You Goons have ridiculed me thousands and thousands and thousands of times. But I have also had people like Wade Pfau marvel at my work. Wade told me that he learned over time never to question what I had told him because in the early days he did that numerous times and every time after he did some research he learned that I was right. Wade told me that I taught him lots of things that he never learned in his Ph.D. program. That ain’t ridicule!
Those sorts of reactions have taught me that I am on to something very important. And then the response of you Goons — to threaten to get Wade fired from his job if he continued doing honest work in this field — doubled my confidence that that is so. You wouldn’t risk going to prison if you thought that there was a rational case that could be made that the safe withdrawal rate could be calculated accurately without taking valuations into consideration. You engage in the criminal stuff because you see no other option other than urging corrections of the studies — and you just cannot bear to do that.
Your behavior hurts me. It holds me back But it doesn’t persuade me. There are some exceptions to that general rule, cases in which you have made reasonable points. But the Goon stuff has zero persuasive power. Actually, it has a negative persuasive power. When I see the Goon stuff, it tells me that the case for Buy-and-Hold is very weak because you Goons have all the motivation in the world to make a case for it and have not been able to come up with anything. If you have not been able to come up with anything in 18 years, how likely is it that someone else is going to come up with anything?
The idea that market timing is not required was just a mistake. There has never been any research showing that that is so. There is research showing that short-term timing doesn’t work but that is very different from a showing that market timing in general is not required. Market timing is price discipline. How could exercising price discipline ever be a bad idea? Once you think about it for a little bit, you come to see that the Buy-and-Hold claim is preposterous. The research shows that it isn’t so. But all you need is common sense to understand that it CANNOT be so.
Being willing to apply common sense to stock investing shouldn’t make me any kind of a leader. But the reality is that it does. The reality is that the Buy-and-Holders still say to this day that market timing is not required. And most people don’t correct them when they do it. I do. So, yes, that makes me a leader. I will be happy when everyone who works in this field is saying openly that market timing is always, always, always required, I won’t be a leader anymore at that time. But I will be living in a better world. I can accept that trade-off!
I wish you the best of luck in all your future endeavors, Goon friend.
Rob the Leader (Who Will Be Happy When He Isn’t One Anymore)
Is this part of your vast research into what constitutes peer reviewed research?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096
The link goes to a paper titled “The Value Premium,” by Eugene Fama and Kenneth French. Here is the abstract:
“Value premiums, which we define as value portfolio returns in excess of market portfolio returns, are on average much lower in the second half of the July 1963-June 2019 period. But the high volatility of monthly premiums prevents us from rejecting the hypothesis that expected premiums are the same in both halves of the sample. Regressions that forecast value premiums with book-to-market ratios in excess of market (BM-BM_M) produce more reliable evidence of second-half declines in expected value premiums, but only if we assume the regression coefficients are constant during the sample period.”
Yes, that is one paper. It is part of the universe of research papers available to us.
The claim that I frequently make is that: “there is now 39 years of peer-reviewed research showing that there is precisely zero chance that a strategy that rules out market timing could ever work for a single long-term investor.” I obviously do not believe that every paper published during that time makes that point. The vast majority of papers don’t even look at that question. And there are of course many good and smart people who believe that market timing is a bad idea and who believe that that view is research-based.
However, the reality remains that there is 39 years of peer-reviewed research showing that market timing is required. If valuations affect long-term returns, as Shiller’s Nobel-prize-winning research shows, then stock investment risk is not constant but variable and any investor seeking to keep his risk profile constant over time MUST engage in market timing. It is a logical impossibility that any investor could keep his risk profile constant without engaging in market timing in a world in which valuations affect long-term returns.
There is not a consensus today re how stock investing works. There are two schools of academic thought and the primary researchers for both schools have been awarded Nobel prizes. What we need to do to advance knowledge is to explore the merits of the case for each school of thought at every discussion board and blog on the internet. That’s the scientific process. You learn new things over time and you explore the implications of the new things that you have learned and then you incorporate the new knowledge into your old understanding of the subject.
The problem in the investment advice field is that we have not been doing this for 39 years now. There is a mountain of money to be made promoting Buy-and-Hold strategies during an out-of-control bull market. So the idea has taken hold that discussion of the implications of the last 39 years of peer-reviewed research must be suppressed at all costs, even if it takes criminal acts to get the job done. I don’t buy it, Anonymous. Engaging in criminal behavior is not science. It is intimidation. It is the OPPOSITE of science. Science is about learning and intimidation blocks learning.
90 percent of the population today believes in Buy-and-Hold. What percentage would believe in Buy-and-Hold had we been permitting honest posting for the past 39 years? We don’t know. We didn’t play it that way, so we have no way of knowing. It could be that the percentage would be 0 percent. We just do not know.
Buy-and-Hold started out as science. Today it is a scam. Any strategy that can only be “defended” with death threats and demands for unjustified board bannings and thousands of acts of defamation and threats to get academic researchers fired from their jobs is a scam. I obviously don’t say that every Buy-and-Holder has engaged in criminal acts. But a small percentage had done so at a good number of places and on a good number of different occasions. And how many of the Buy-and-Holders who have not engaged in criminal acts have spoken out in opposition to those who have? Some have done this. Most have not. And even those who did it on one or two occasions stopped doing it when the Goons turned their attention to them. That doesn’t inspire confidence in the strategy in the minds of reasonable people.
If Buy-and-Hold was real, we never would have seen a single abusive (much less criminal) act. If Buy-and-Hold was real, the Buy-and-Holders would welcome questioning and challenges. They would see challenges as potential learning experiences, not as deadly threats that must be suppressed at all costs.
Please mark me down as saying that Buy-and-Hold was a wonderful thing when it was developed and has become a scam in the days since the Buy-and-Holders gave up hope that the strategy could be defended in civil and reasoned discussions and concluded that the only way it could survive is with the ugly abusive and even criminal stuff. Not this boy, you know? Your own behavior shows how weak the case is for this “strategy.” I put the word “strategy” in quotes because the idea that market timing (price discipline!) is not required is not the product of human reason. It is the product of the Get Rich Quick impulse that resides within all of us. There is no thought associated with it.
Market timing is price discipline. It is required always and everywhere. The claim that there might be an exception to that rule on some alternate universe is preposterous on its face. That’s why it gets the Buy-and-Holders so angry to hear the claim questioned There is no research-based case for ANY Get Rich Quick strategy. Get Rich Quick strategies are supported by emotion, not reason.
This is why Wade Pfau was not able to find a single piece of peer-reviewed research supporting the Buy-and-Hold claim that market timing does not work. The claim that market timing is not required is a marketing gimmick, a money-making thing. It is not reasonable to expect peer-reviewed research to support marketing gimmicks. Research is aimed at getting at the truth, marketing gimmicks are aimed at turning a quick buck.
My sincere take.
Marketing Gimmick Challenger Rob