“Shiller Changed the Very Language That We Use to Talk About Stock Investing. You Could Compare It to What Darwin Did or to What Freud Did or to What Galileo Did.”

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:

And yet you wonder why you have no supporters.

I have supporters. It’s not a majority of the population. But about 10 percent of the population thinks my stuff is amazing. I have had numerous people tell me that my writing on stock investing is the first stuff that they have ever read that makes complete sense of the subject. It’s those sorts of comments that give me the encouragement that I need to hear to continue fighting the good fight.

In ordinary circumstances, I could go to all kinds of sites and that 10 percent would in time grow to 20 percent and then to 40 percent and then to 80 percent and Valuation-Informed Indexing would replace Buy-and-Hold as the dominant model for understanding the subject. But about 10 percent of that 90 percent who are not immediate fans reacts to the idea that market timing is required for long-term success with a level of defensiveness that is just completely off the charts. The level of vitriol that you see from this group is 20 times greater than anything you have ever seen in a polarized political discussion. It is unreal. If you think abortion is a hot button issue, you have never been in the middle of a discussion as to whether it is possible to calculate the safe withdrawal rate accurately without taking into consideration the valuation level that applies on the day that the retirement begins. Holy moly!

I take that as strong evidence that Shiller is right. The only thing that Shiller is saying that is different from what the Buy-and-Holder say is that the Buy-and-Holders believe that stock investors make rational choices and Shiller’s research shows that investors are often highly emotional (the CAPE metric tells us how much investor emotions are affecting the stock price at any given point in time). So, if Shiller is right, we should be seeing insane levels of emotion in most investors at times when stocks are priced as they are today. I can testify that there is a lot of crazy stuff going on at investing discussion boards today, stuff that just ain’t normal and healthy.

Will all that change when prices drop? Will investors become less emotional about Buy-and-Hold when prices have fallen to fair-value levels or lower? I believe they will. I don’t believe that it is even possible to hold a civil and reasoned debate about these matters today. I have certainly run into Buy-and-Holders who are exceptions to that rule. But they are the in the minority and sooner or later they always get drowned out by the more emotional voices. So we cannot really even say whether Buy-and-Hold makes sense or not. Until prices drop, we are not as a people capable of engaging in the discussion it would take to develop a reasoned assessment.

Shiller changed the very language that we use to talk about stock investing. You could compare it to what Darwin did or to what Freud did or to what Galileo did. Galileo was put under house arrest by the Catholic church because he said that the earth was not the center of the universe and that conflicted with what people knew with 100 percent certainty was so from reading the Bible. I am a believer. So I am all for reading the Bible. But I think that Galileo did a good thing by taking a scientific approach to the questions he examined. I believe that God gave us our brains and that He wants us to use them to learn what we can about the world around us. I believe that Shiller advanced that cause by teaching us things about stock investing that we just did not know before and that the only reason why people become upset to read my stuff is that it is so different from what they have come to believe is so from reading stuff that doesn’t take Shiller’s Nobel-prize-winning research findings into consideration.

I have supporters, Sammy. Not as many as I would like, But I have some very intense supporters. And I believe that when the time arrives when more people feel safe talking about the far-reaching implications of Shiller’s work, I will have a lot more of them. I believe that Buy-and-Hold is the past of investment analysis and that Valuation-Informed Indexing is the future. I mean no insult to my Buy-and-Hold friends by saying that. I think that the Buy-and-Holders made many important contributions to our understanding of the subject. But I also believe that Shiller merited his Nobel prize and that we all need to begin working together to integrate his powerful insights into the understanding of how stock investing works that the Buy-and-Holders advanced before he came along.

That’s where I am coming from, in any event. I naturally wish you the best of luck with whatever investment strategy you personally find most appealing.

Rob