“It Would Be a Good Thing If Shiller Made His Advocacy of Market Timing More Explicit. I Would Like to See Shiller Write an Entire Book on All the Ins and Outs of Market Timing, When To Do It and When Not To Do It, How To Do It, Why It Is So Important.”

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:

Stop blaming Shiller for your failed timing strategy. He warned you not to use CAPE to time the market. Stop twisting it around. You only have yourself to blame.

I love Shiller. Shiller and Bogle are my two favorite investment advisers of all time and I rank Shiller first. (Bogle, by the way, said in a post to the Bogleheads Forum, that he could see how market timing could work so long as the investors employing it only practiced it when prices got to extremes — I agree that there is no need to engage in market timing more than once every ten years on average but I say that it is absolutely critical to engage in it on those rare occasions when prices get totally out of control, like today). I have devoted 18 years of my life to exploring Shiller’s ideas. So I think it would be fair to say that I have made my respect for the man pretty darn evident.

That said, I can acknowledge that it would be a good thing if Shiller made his advocacy of market timing more explicit. He has recommended it on several occasions and his life’s work shows the need for it. But I would like to see Shiller write an entire book on all the ins and outs of market timing, when to do it and when not to do it, how to do it, why it is so important. That’s a book that we all need to see and learn from.

And of course it is not only Shiller who could write such a book. Shiller’s research is available for all to review. We need to get lots of people absorbing its powerful lessons and writing books on the many benefits of market timing. I am writing a book on the subject. So I am doing my part. But I am some guy whose only claim to expertise in this field is that I figured out how to get posts to appear on internet discussion boards. This niche should not be left to me. We should have hundreds and hundreds of smart and good people pitching in.

Shiller changed the world in a very positive way, Sammy. That is why he was awarded a Nobel prize. And the thing that he did, if you want to reduce it down to one sentence, is that he showed that market timing is absolutely essential for all investors hoping to achieve long-term success. That’s the thing that we did not know before Shiller came along that those who have spent some time thinking about his research findings now do know. If stock gains that are caused by overvaluation are nothing more than irrational exuberance and do not reflect any economic realities, then stock investing risk is not constant but variable. If risk is variable, then an investor who wants to maintain the same risk profile over time MUST practice market timing.

Three cheers for market timing! We once thought that it was not necessary but now we know better. So now we can all live richer lives on a going forward basis.

Rob