Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
If all you are doing is confirming Shiller’s work why would he have anything to fear? Why would Pfau have anything to fear if you are just confirming his famous paper?
It’s a perfectly reasonable question that gets right to the heart of things.
We are as a society living in a twilight zone. We know intellectually how stock investing works. We have known for 39 years now. Shiller’s book is carried in most libraries. His research was published in a peer-reviewed journal. The New York Times reported on the awarding of a Nobel prize to him. So Buy-and-Hold is in the past, right? There is no respectable person today who questions the merit of market timing, right?
Those things are not so. We know how stock investing works. But we do not want to know. The humans have ways of not knowing things that they do not want to know. Alcoholics know on one level of consciousness that their drinking is doing them harm. But they want to continue with the drinking. So they persuade themselves that they can quit at any time and, yes, they really believe that on one level of consciousness. Humans are not just the rational animal. They are also the rationalIZING animal.
The last 39 years of peer-reviewed research is a threat to the Buy-and-Holders/Get Rich Quickers. And to some extent that’s all of us. I was once a Buy-and-Holder. I once liked the feeling of pretending that my stock portfolio was worth more than it really was worth. We are fighting a battle of reason vs. emotion, Anonymous.
I believe that reason is going to prevail in the end. But I would, wouldn’t I? I believe that Buy-and-Hold/Get Rich Quick will not seem quite so magical after we have seen millions of failed retirements and hundreds of thousands of failed businesses and millions of people thrown out of work and increasing political tensions. But we’ll see, you know?
Shiller and Pfau both obviously continue to do honest and good and important work. They are helping. But they don’t cross that line that causes the Buy-and-Holders to go nuts. There were people on our boards who believed that Shiller’s Nobel-prize-winning research was legitimate research and who were not banned. They did not point out that Greaney’s study lacked a valuations adjustment and thus got the numbers wildly wrong. So they were permitted to hang around. I crossed a line that cannot be crossed, in the eyes of the Buy-and-Holders. I explored the far-reaching IMPLICATIONS of Shiller’s research. The brings on the death sentence.
If Shiller was not afraid to cross the Buy-and-Holders, there would be a sentence in his book saying: “Given my research finding that valuations affect long-term returns, there is zero chance that the safe withdrawal rate is the same number at all times, so the Buy-and-Hold retirement studies should be corrected immediately before they cause more harm.” No such sentence appears in his wonderful, amazing, breakthrough book.
We are as a society working our way through a difficult transitional process. We have achieved some amazing advances over the past 39 years. But we would have achieved a lot more if we had been following in the investment advice field the procedures that we follow in all other areas of life endeavor. My job with my book is to tell the story of why it is so important that we all begin doing that. It is a win/win/win/win/win, with no possible downside. But, yes, it is hard even for great people like Shiller and Pfau to say out loud that “the numbers in those retirement studies are in error and should be corrected immediately.” Saying that causes pain for the Buy-and-Holders and all of us feel a reluctance to cause our fellow humans pain.
The question is — Does the pain get better or worse as the length of the cover-up stretches to longer time-periods?
You know what I think.
Rob
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