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:
What you do with Shiller, and with others, is say things that they didn’t say and then when pressed, you say that they really meant to say those things but were too scared. Basically, you make things up.
Are you willing to say what you believe Shiller thinks about safe withdrawal rates? Shiller’s research shows that valuations affect long-term returns. I say that, if that is so, there is precisely zero chance that the safe withdrawal rate is the same number at all valuation levels.
The safe withdrawal rate is a risk assessment tool. If valuations affect long-term returns, then stock investing risk is not stable but variable. Risk is greater when valuations are high and lower when valuations are low. So the safe withdrawal rate is lower when valuations are high and higher when valuations are low.
I have never seen Shiller comment directly on the safe withdrawal rate issue. I wish that he would do so. It would make my life go a lot easier. I think that we all would benefit from hearing him comment on the question. I wish that some of my Buy-and-Hold friends who feel so strongly that the safe withdrawal rate is always the same number (they say that it is always 4 percent) would ask Shiller what he believes and put this matter to rest. I am 100 percent confident that, if they asked in a polite way, he would respond. Shiller is an extremely affable guy. He is not going to respond if you are abusive in your tone. But if you show that you have a sincere desire to know the answer, he will accommodate you.
Are you willing to say what you think Shiller believes re this one, Sammy? I am not asking what YOU believe re safe withdrawal rates. I am asking what you believe SHILLER (who believes that valuations affect long-term returns) believes re safe withdrawal rates.
Rob Bennett believes that Shiller believes that the safe withdrawal rate is a number that changes in response to changes in valuation levels. He believes that because that logically follows from a showing that valuations affect long-term returns and it has been Shiller’s life work to show that valuations affect long-term returns.
Shiller is saying something different that the Buy-and-Holders. Something very, very, very different. And I happen to think that he is right. I believe that Shiller’s Nobel-prize-winning research is legitimate research. And I offer no apologies for saying so or for saying that the Buy-and-Holders get some very important questions (like the calculation of the safe withdrawal rate) terribly wrong.
Rob
Do you read minds? If not, you have no clue as to what Shiller thinks. Making comments beyond what he actually said is just making things up.
That’s not so.
All learning is achieved building-block style. Someone develops an insight and shares it with his fellow humans. The fellow humans then put their own brains to work applying the insight in hundreds and hundreds of contexts that the person who developed the insight did not consider. This is a magical process. This process permits the benefits of that first insight to stretch onward and onward and onward.
Shiller was not awarded a Nobel prize because he came up with one tiny little insight. Doing that might have gotten him an article somewhere but not a Nobel prize. Shiller’s work is “revolutionary” (this word appears in the subtitle of Shiller’s book). It changes the fundamentals of our understanding of how stock investing works. It puts every single strategic question that has ever been considered in the investing advice field in a new light.
Those who fail to explore the far-reaching implications of Shiller’s work are insulting him. Not directly but implicitly. It is standard operating procedure in our culture to explore the far-reaching implications of revolutionary insights. So that’s what I do re Shiller’s breakthrough showing that the market is not efficient (rational) but that in fact valuations affect long-term returns (meaning that market timing is 100 percent required for those who want to maintain a constant risk profile over time). The suggestion of a decision not to explore the implications of Shiller’s amazing work is that his work is not such a big deal. Not this boy, you know? If Shiller’s Nobel-prize-winning research is legitimate research, it is the biggest deal possible. I have devoted 18 years of my life to exploring the far-reaching implications of Shiller’s work and I offer precisely zero apologies for doing so.
If valuations affect long-term returns, there is precisely zero chance that the safe withdrawal rate is the same number at all times. If valuations affect long-term returns, stock investing risk is not constant but variable. The safe withdrawal rate is a risk assessment tool. If risk is variable, that number must change with changes in valuations. Saying that is like saying that two plus two equals four, It is as basic as basic gets.
The question that people should be asking is — Why isn’t there universal agreement that the safe withdrawal rate is a number that changes with changes in valuation levels? Why didn’t Shiller include a statement saying that in his book?
The answer to that one is that what Shiller does is science and science advances knowledge. Most of the people who work in this field and make mountains of money doing it are not scientists. They see a huge marketing edge in claiming that their advice is rooted in science. But they see a huge marketing negative in having to admit mistakes. Science is a process of learning new things. When the science seemed to support Buy-and-Hold, these people jumped on Buy-and-Hold. But when the science changed (with the publication of Shiller’s Nobel-prize-winning research in 1981), keeping up with the science became a marketing negative. If our Wall Street Con Men friends were going to keep up with the science, they would have had to acknowledge the far-reaching implications of Shiller’s work, they would have had to say the words “I” and “Was’ and “Wrong.” They saw a financial incentive in ignoring Shiller. And so we are where we are today.
I see a financial advantage in taking us all to a better place. And I of course believe that our Wall Street Con Men friends would prefer that better place themselves once they got to live in it. So I made a decision back in May 2002 to post honestly re these matters and I have held firmly to that ever since. I have never had occasion to doubt that one. I have enjoyed hundreds of amazing learning experiences as a result of working up the courage to advance the Post Heard ‘Round the World on the morning of May 13, 2002. I bless the Creator (or Fate or Evolution, or whatever word you want to use to refer to the great, cosmic force that oversees the lives of the humans) for giving me the courage to stand up to The Greaney Monster on that day.
My sincere take.
And my best and warmest wishes.
Implication Exploring (and Unapologetic About It) Rob