Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I am sure that Robert Shiller, like almost everyone else, has Googled his name to see what people say about him. There is no doubt that he has seen that you have mentioned his name thousands of times. What is interesting is that he has never come to respond to you or comment about you. That demonstrates that he does not agree one bit about what you have to say about his work. It is the only logical conclusion.
I don’t agree.
I agree with the first part. I am certain that Shiller knows about me (because I know that he reads his e-mails and I have written to him on two occasions). My guess is that he is only slightly aware of me. Perhaps he has only seen those two e-mails or perhaps it’s a little more than that — perhaps he has seen one or two discussion threads in which I participated, something like that.
So I agree that there is at least a small bit of awareness. And I 100 percent agree that it is remarkable that he has never offered any kind of endorsement. Shiller should be an advocate of his ideas. It was his life’s work to produce those ideas. I have devoted 18 years of my life to exploring and promoting his ideas. In ordinary circumstances, you would 100 percent expect him to take an interest in what I have done. If nothing else, he should be flattered. You would expect him to be generally supportive. It would not be surprising if he did not agree with everything that I said about his ideas. In those cases, you would expect him to share his own take with me, to tell me what he thought I got right and what he thought I got wrong. The fact that Shiller has not said a word about my work — and he has not — is an exceedingly strange reality. You and I are 100 percent in accord re that one, Anonymous.
I disagree that the only logical conclusion is that he does not agree one bit with what I say.
The reason that I disagree is that this strange reality that Shiller has not demonstrated an interest in my work has evidenced itself in a world in which similarly strange realities have also evidenced themselves. I say that Shiller’s research shows that there is precisely zero chance that the 4 percent rule is a valid rule. What does Shiller say about that? He doesn’t say ANYTHING about it. That’s really, really, really strange. His finding that valuations affect long-term returns obviously has a bearing on the question of what retirement withdrawal is safe. It’s theoretically possible that Shiller believes that the effect is not so great. If that were the case, the natural thing for him to do would be to discuss the question in his book, to explain why he does not think that the effect is that great. I am not able to come up with any logical explanation of why he did not do that.
It’s a mystery why Shiller has not commented on my work. I give you that one. But you are ignoring the other big mystery here. Why did Shiller not address the question at all in his book or in articles or in interviews? And Shiller’s behavior here is 100 percent in concert with the behavior of many others. Bernstein said in his book that the 4 percent rule was two points off the mark at the top of the bubble. That’s what i say. But Bernstein too has not commented on my work. When the discussions were raging at the Bogleheads Forum as to whether the safe withdrawal rate studies are in error, Bernstein never stepped forward and said that he believed that there was indeed an error even though he at times participated in discussions at that board. That’s as crazy a reality as the one with Shiller.
It is a general phenomenon. When Wade Pfau was working with me, he was amazed to find that his research showed that everything that I said about stock investing checked out. One time I said something to him that he found a little hard to believe. But then he noted that, every time he questioned something that I said, he learned that I was right when he went to the trouble to research the question. Wade thought that our work was of huge value. He discussed the possibility that he might be awarded a Nobel prize for the work he did with me. So he was clearly a big believer. But today he is with Shiller and Bernstein — be no longer works with me or even comments on my work. Exceedingly strange. I have seen this same general phenomenon play out over and over and over again.
My explanation is that Shiller’s finding that the market is not efficient is so “revolutionary” (his word) that as a society we have just not been able to absorb it for 39 years now. The ordinary thing would be that there would today be discussions at every investing site on the internet as to whether it is Fama or Shiller who is right. But we don’t see discussions of that nature being held at a single site. That’s a puzzle. If we want to know what is going on here, we have to explain that one.
There is a phenomenon called “cognitive dissonance.” The human brains blocks out information that comes in that it does not for some reason or other want to process. When Shiller published his Nobel-prize-winning research, every person who works in this field understood on some level of consciousness that it changed everything that we once thought we knew about how stock investing works. Every textbook had to be rewritten, every calculator had to be rejiggered, every person who had come to be regarded as an expert in his understanding of the old model now needed to rebuild his reputation by showing a mastery of the new model rooted in the new research. People saw Shiller’s work as a threat. So they went into cognitive dissonance mode, They shut it out of their brains, they ignored Shiller’s research.
Now 39 years have passed. It is no longer just Shiller’s research findings that people want to ignore. They also want to ignore the 39-year cover-up of Shiller’s research findings. The desire to not talk about this stuff is greater today than it has ever been before. Talk about it today and you are going to have to talk about how the promotion of Buy-and-Hold strategies caused the economic crisis of 2008. We were all in on that. We all let that happen. Who wants to talk about this terrible mistake that we made?
That’s why Shiller keeps quiet about the far-reaching implications of his amazing research. That’s why Bernstein keeps quiet. That’s why Pfau keeps quiet. That’s why everyone keeps quiet.
I don’t see the embarrassment that we all feel over the 39-year cover-up as a good reason to keep quiet. If we keep quiet for another year, it is going to become a 40-year cover-up. Is that better? It’s not. Keeping quiet makes things worse, not better. So I speak up. And I urge all others to speak up.
If stocks continue to perform in the future anything at all as they always have in the past. we will be seeing another price crash in the not-too-distant future. I believe that some people will work up the courage to speak up then. Once a few do, the floodgates will open and people will be talking about the last 39 years of peer-reviewed research on every investing site on the internet. I am 100 percent confident that Shiller will be commenting on my work at that time.
I could be wrong. I don’t think that that’s the case. But you never know, right? We will just have to wait a bit to see how it all plays out.
My best and warmest wishes.
Shiller (And Bernstein! And Pfau! And Bogle!) Fan Rob
“ Shiller should be an advocate of his ideas.”
But that doesn’t mean he has to be an advocate of your interpretation of his work.
He should address questions relating to the implications of his ideas. He could say: “Given my finding that valuations affect long-term returns, there is precisely zero chance that the safe withdrawal rate is the same number at all times.” Or he could say: “Despite my finding that valuations affect long-term returns, I still think that it is possible that the safe withdrawal rate could be the same number at all times and here’s why.”
One of those statements is in accord my my views and one is not. Both of them enhance our understanding. The current situation — where Shiller fails to engage on these questions because he fears what the Buy-and-Holders will do to him if he does so — is not healthy. It leaves these questions up in the air. And the questions are too important for us as a society not to be exploring them.
That’s my sincere take, Anonymous.
My best wishes to you.
Implication-Exploring Rob
“ He should address questions relating to the implications of his ideas.”
Why does he need to answer YOUR questions? If he, or anyone else, is asked a question, why is there an obligation to answer? You could have hundreds of thousands of people asking different questions. Why does he owe Rob Bennett an answer? Why does Shiller have to comment on your make believe assumption that he is threatened by buy and hold goons?
Shiller predicted the 2008 economic crisis in his book, which was published in 2000. Had the entire internet been open to honest posting at that time, we could have avoided that economic crisis. Investors obviously want to do what is in their best interest. Shiller’s research shows that it is in their best interest always to engage in long-term market timing (price discipline). When we all gain the freedom to talk about that, stock prices become self-regulating. From that point forward, we could never again see the insane price levels that caused that economic crisis.
So hundreds of thousands of businesses would not have gone under. And millions of workers would not have been thrown out of their jobs. And we would not have seen the political frictions that remain a problem to this day. It is Shiller’s Nobel-prize-winning research that showed us the path to avoiding all that. And you are asking why he would want to help out? Are you joking? The reason why he did the research was to help out. Of course he wants to see millions of people benefit from it. The question is absurd.
Why did Martin Luther King do what he did? Why did millions of people do what they could to follow in his footsteps? Why do people revere the man to this day? Caring for others is part of human nature, Anonymous. We are not all Goons.
The full truth is that even you Goons have a tiny part of that within you. Had Shiller gone public with his sincere views on safe withdrawal rates back when he published his book, you Goons would not have been able to spend the last 18 years of your lives engaging in criminal acts aimed at destroying millions of lives. Can you honestly say that you wouldn’t feel a lot better about yourselves today had Shiller played it that way? I sure think you would.
The desire to help other humans is part of what makes us human ourselves. That will never change. I don’t care how much money the promotion of Buy-and-Hold strategies puts in the pockets of our Wall Street Con Men friends. Our Wall Street Con Men friends would deep down inside like to gain the freedom to do honest work in their chosen profession. I am sure. That is why you see people like William Bernstein sneaking honest statements about safe withdrawal rates into their books. Most of the people who work in this field are engaging in as much honest work as they think they can get away with. They would love to feel that they could get away with more. And having Shiller speaking out clearly on all sorts of issues would help them do that.
Shiller is one of the humans. He has a natural desire to help the other humans. That’s why he did the research that led to him being awarded a Nobel prize. And that is why he would like to feel free to talk clearly about the far-reaching implications of that research at every place at which he speaks on investment-related topics.
That was an easy one. I mean — Holy moly!
Please take good care, my dear Goon friend.
People Person (Even When The People in Question Are Goons!) Rob
“Shiller predicted the 2008 economic crisis in his book, which was published in 2000.”
Actually, he did not. You fail to understand the real cause of the 2008 financial crisis. Secondly, you have not answered the questions above. How ironic. You want other people to answer all your questions, but you avoid giving direct answers to questions asked of you.
Here are Shiller’s words:
“If, over some interval in the first decade or so of the twenty-first Century, the U.S. stock market is going to follow an uneven course down, as well it might – back, let us say, to its levels in the mid-1990s or even lower – then individuals, foundations, college endowments and other beneficiaries of the market are going to find themselves poorer, in the aggregate by trillions of dollars. The real losses could be comparable to the total destruction of all the schools in the country, or all the farms in the country, or possibly even all the homes in the country.”
We should be talking about this stuff at every discussion board and blog on the internet, without a single exception. We should all be working together to learn all that we can learn as quickly as we can possibly learn it.
That is my sincere take re these terribly important matters, in any event.
I naturally wish you all good things.
Ironic Rob
And none of that happened. Show us where it hit the levels of the mid 90’s. The endowments and individuals came out fine, thanks to buy and hold. In fact, we have seen new highs in the market.
The CAPE fell to 13. That’s far below where it was in the mid-90s. But it only stayed there for a few months. So, yes, people who stuck with their positions ended up fine. That’s understood.
The question that matters is — Did the insane price increases that we saw in the late 1990s cause the 2008 economic crisis. Under the Buy-and-Hold Model, it is economic developments that cause economic crises. High stock prices are a good thing because they suggest a strong economy, which of course is a positive. But things are very different under the Valuation-Informed Indexing Model. Under the Shiller Model, it is shifts in investor emotion that cause price changes. When prices go above the fair-value CAPE level, those gains are not rooted in economic developments but in irrational exuberance. Those gains DISAPPEAR over time. And, when those gains disappear, consumers feel that they must cut back on spending, which causes an economic contraction.
Stock gains that are not real are dangerous. They create phantom wealth. Please don’t tell me that Shiller doesnt believe that excessive stock gains do not create phantom wealth. He named his book “Irrational Exuberance.” Is there anything that he could do to make the essential point more clear? Irrational Exubernace is a bad thing. We all should be doing everything in our power to combat it. The only thing that could possibly do the job is market timing. If investors knew to lower their stock allocations when prices got too high, irrational exuberance would no longer exist. That’s what we all should want.
You say “we have seen new highs in the market.” You seriously do not get it. Under the Buy-and-Hold Model, new highs are a good thing because they signal a strong economy. Under the Shiller Model (Valuation-Informed Indexing), new highs are a catastrophe. They signal an irrational exuberance that has gone even more out of control.
Shiller is saying that high stock prices are a bad thing. He is OPPOSED to irrational exuberance. He believes that investors should try to be less emotional, not more so. We want to rein in the craziness, not push it to ever high levels. We are viewing these matters from different perspectives, Anonymous.
New-Highs Skeptic Rob
Take a look at the S&P level in the mid 90s. It was lower than the lowest point in 2008. I am glad to see you admit that buy and holders were handsomely rewarded, while market timers did not fair well.
It’s the CAPE level that matters. It was 25 in 1996. It hit 13 in early 2009.
Buy-and-Holders were TEMPORARILY rewarded. It all comes down to whether or not Shiller is right that excess returns are the product of irrational exuberance and are not lasting. If that’s so, all that the Buy-and-Holders are doing is fooling themselves by treating those returns as real and the Valuation-Informed Indexers are better off because they have a better understanding of the true value of their portfolios and thus can engage in more effective financial planning.
You speak as if you believe that irrational exuberance is a good thing. I see it as the mortal enemy of stock investors. Every word that I write is aimed at persuading investors to do everything in their power to rein in any temptations to experience irrational exuberance.
Rob
He said stock levels. Read again. Buy and holders have had long term rewards. VII hasn’t had a win yet. You acknowledged that the other day. It has been 24 years. Your crash hasn’t happened. Deal with it.
Everything you are saying is wrong. Shiller’s entire book is about the dangers of high CAPE levels. That is what he was talking about. VII has all wins and Buy-and-Hold has no wins. The peer-reviewed reviewed research that I co-authored with Wade Pfau shows that beyond any reasonable doubt. That is why he declared: “Yes, Virginia, Valuation-Informed Indexing works!” And that is why you threatened to get him fired from his job if he continued doing honest research.
No, the crash hasn’t happened yet. You’ve got me re that one. But, if half of millions of portfolios is just irrational exuberance, as Shiller’s research shows, it WILL happen. If it is going to happen, we are better off telling people that now. People are going to be pissed when it happens. You are better off getting out in front of this one.
My sincere take.
CAPE Level Conscious Rob
But all the crash predictions haven’t materialized and the gap between buy and hold vs VII continues to grow. Aren’t we at the point that even a crash still doesn’t bring the buy and hold portfolio below VII?
I have done that analysis before. I have not done it super recently. The conclusion when I did it before was that it was a close call. It depended on whether you felt that you should be compensated for the extra risk that you take on when you invest in stocks. If you felt that you should be compensated for the extra risk, the Valuation-Informed Indexing portfolio ended up ahead. If you looked only at the numbers and didn’t insist on compensation for extra risk, the Buy-and-Hold portfolio ended up a little ahead in some circumstances. But not by a huge amount.
I believe that every investor should do the analysis. And not from just one angle. People should look at the question from multiple perspectives. The more you do that, the better you understand stock investing. And, the better you understand stock investing, the more likely you are to stick with your plan for the long term. Both Buy-and-Holders and Valuation-Informed Indexers say that that is critical. So I see the process of going through the analysis with an open mind as being absolutely critical for all investors.
This is always the sticking point between you Goons and me. I think that, the more you learn, the better off you are. And that we learn by talking things over. You want to silence all challenges to Buy-and-Hold. I think that’s nuts. If Buy-and-Hold is the real thing, it will be able to withstand any challenges. The fact that many Buy-and-Holders want to silence challenges is a very bad sign for Buy-and-Hold, in my assessment.
There is certainly some point at which, if an expected crash has not taken place for many years, it would have been better to have just followed a Buy-and-Hold strategy. Stocks offer much higher returns than super-safe asset classes. So there is a point at which it would pay off. But it is clear that that point is much farther out than most people realize. MUCH farther out. Crashes are devastating. Lose 70 percent of your portfolio in a crash and it can take a long, long time to recover from that loss. It is counter-intuitive how much you can hurt yourself by taking a hit like that.
In the final analysis, these questions are personal. Some people are willing to take the hit rather than ever put a significant amount of their money in a low-return asset class. That’s not me. But it is not my place to tell people what to do. If people want to go that way, I wish them the best of luck with it.
But others do not want to be placed in circumstances in which they could suffer a devastating hit. I think that we all should be doing everything in out power to let those people know what alternatives are available to them. I see Valuation-Informed Indexing as an amazing alternative for millions of people. So I want to get the word out. It is my sincere belief that everyone, including you Goons, ends up better off if the word gets out.
So I am 100 percent if favor of that, even though I acknowledge that there comes a time when, if the crash has been delayed long enough. Buy-and-Hold comes to be the better choice. I don’t think we are there yet. But I do think there could come a time when we would be there for some portion of the population. I think you Goons greatly, greatly exaggerate the benefits of Buy-and-Hold and that it is dishonest and foolish to do it to the extent you do. I think that Valuation-Informed Indexing is a far superior strategy on an overall basis but that there may be some exceptions to the general rule, and given how long the crash has been deferred, the past 24 years is a time-period that may end up being one of the exceptions to the general rule, at least for a portion of the population (but almost certainly not for all of it).
Rob
I did the analysis. It wasn’t even close. If I had followed VII, I wouldn’t have been able to retire.
You’re a Goon, Anonymous. You are not exactly trustworthy re this matter.
If you personally believed that you could convince Normals of the merits of Buy-and-Hold, you would be fine with permitting honest posting at every site. Your behavior shows that you don’t believe that Buy-and-Hold can survive open debate. I believe that you personally follow it. That’s evidence that at least to some extent you do believe. But I find the fact that you do not favor open debate deeply troubling.
My view is that Valuation-Informed Indexing is far superior. But I certainly enjoy hearing challenges from Buy-and-Holders (so long as they do not constitute violations of law, as with the death threats and acts of extortion, etc.). You only want to hear from Buy-and-Holders, as if that is the only option. That is deeply sick and deeply wrong, in my assessment,
It will be interesting to see how it all plays out.
My best wishes to you.
Rob
“ You’re a Goon, Anonymous. You are not exactly trustworthy re this matter.”
You have to resort to name calling because you can’t win a factual debate. You talk about opening up other websites, yet you continually block posts on your website. How is this not hypocritical ?
I follow track records. I have seen thousands of buy, hold and rebalance outcomes in people that have successfully retired, but I can’t even find anyone that has been successful wit VII. The only explanation that you have is that we all just have to wait until things play out. That doesn’t work. The largest group of people retire between the ages of 60-65. That means that they have to have their retirement plan in place and nearly finished in their 50’s. They have to go with something proven. The risk isn’t worth it.
The peer-reviewed research that I co-authored with Wade Pfau shows that investors who make the switch from Buy-and-Hold to Valuation-Informed Indexing thereby reduce their stock investing risk by 70 percent, Anonymous. The risk question is not even a close call. That’s why you engaged in criminal acts (extortion is a crime) to shut Wade up.
And our research went back to 1870. We didn’t pick 24 years out of context and say “oh, look, we have come up with something that every now and again will produce good results for a relatively short time-period. We looked at the entire history. Everyone who has ever followed VII has done well with it. That’s not true YET for those who invested only from 1996 through today. But it will likely be true following the next price crash, which could come at any time.
The question is — Are you willing to take a bet with your life savings that stocks will be performing in the future in ways in which they have never in the past performed? It’s possible. No one can say with absolute certainty. But I think it would be fair to say that the Buy-and-Hold bet is the longest of all possible longshot bets. That’s why you get so emotional re these matters. You really, really, really want to believe that long-term market timing isn’t required. But there is no support for that outlandish claim in the peer-reviewed research.
Please mark me down as saying that long-term market timing (price discipline) has always been required and always will be. It’s not possible to imagine that there could ever be a market that would not collapse if most participants in it were not practicing price discipline when making purchase decisions.
My best and warmest wishes to you and yours, in any event.
Rob